A Complete Guide to VA Loan Inspection Requirements

Purchasing a home is one of the most exciting yet stressful undertakings in life. As a veteran, you want to ensure you find a property that suits your needs and qualifies for VA loan benefits. VA loans help eligible veterans, active-duty service members, and surviving spouses achieve the dream of homeownership. When applying for a VA loan, you will likely encounter the terms “VA home inspection” and “VA appraisal.” While these two assessments sound similar, they have some notable differences.

In this comprehensive guide, we will explain everything you need to know about VA loan inspection requirements. We will cover the difference between a VA appraisal and home inspection, VA appraisal guidelines, minimum property requirements, how to address appraisal problems, and frequently asked questions. Read on to gain a full understanding of what to expect with the VA loan inspection process.

Overview of VA Appraisals vs. Home Inspections

The VA does not mandate home inspections for purchase loans. They are optional but highly recommended by most lenders. VA loans differ in this respect from FHA, conventional, and other loan programs.

On the other hand, every VA loan requires a home appraisal to determine the property’s value for lending purposes The appraisal also verifies that the home satisfies the VA’s minimum property requirements (MPRs) The MPRs safeguard veterans from buying unsafe or structurally unsound homes.

Because VA appraisals involve evaluating compliance with these standards, some borrowers confuse appraisals with inspections While the two processes share some similarities, they serve different functions

Purpose of the VA Appraisal

A VA appraisal primarily establishes a home’s fair market value, which lenders use to determine the loan amount The appraised value also ensures the property retains adequate collateral should the borrower default

Additionally, the appraiser must confirm the home is safe, sound, and sanitary for habitation. In other words, the property is livable and unlikely to pose any physical or financial harm to the buyer. The appraiser must verify adherence to the VA’s minimum property standards and that the home won’t demand significant repairs post-purchase. The findings appear in a detailed appraisal report.

Limitations of VA Appraisals

Despite the rigorous nature of VA appraisals, they cannot substitute for a comprehensive home inspection. The appraisal analyzes readily visible aspects of the property but does not involve an exhaustive examination like an inspection. A home inspector will scour every inch of the house to uncover existing defects or future problem areas.

Overview of VA Appraisal Requirements

VA appraisals share similarities with conventional appraisals but also have unique requirements. Let’s explore some of the most important features of the VA appraisal process.

• Determining Fair Market Value – The primary role of both VA and conventional appraisals involves assessing the fair market value. The appraiser will visit the property, take measurements, document overall condition, and photograph relevant features. The appraiser will also analyze sales of at least three comparable homes sold nearby within the past six months. This market analysis produces the estimated value.

• Identifying Value-Impacting Attributes – Appraisers for both VA and conventional loans will note significant home defects or upgrades that respectively detract or enhance value. For instance, a damaged roof would lower the appraisal, while a remodeled, expanded kitchen could increase it.

• Third-Party Ordered – The lender always orders the appraisal through an independent agency, though the borrower pays the fee.

• Minimum Property Requirements – The main distinction is that VA appraisals must satisfy minimum property requirements designed to protect veteran buyers. While the MPRs may worry some borrowers, denials based on them are relatively rare. Often, they help buyers avoid overpaying for homes needing major repairs.

• Higher Fee – VA appraisals tend to cost more than conventional ones given the extra time required to inspect MPR compliance. Fees generally range from $600 to $900.

Overall, VA appraisals offer critical protections through their minimum property requirements while still serving the conventional goal of valuation for lending purposes. As long as the home remains well-maintained, appraisers can typically issue an approval assuming no major defects exist. Next, let’s take a closer look at the VA’s minimum property requirements.

Overview of VA Minimum Property Requirements

The Department of Veterans Affairs establishes minimum property requirements to ensure purchased homes remain safe, structurally sound, and sanitary. The guidelines cover topics like hazards, pest control, utilities, drainage, and more. While the MPRs aim to safeguard buyers, they should not deter most purchases of well-cared for homes.

Below we summarize ten key areas addressed by the MPRs:

• Adequate Living Space – Homes must offer sufficient space for living, sleeping, cooking, dining, and sanitation accommodations. Local building codes dictate minimum size requirements.

• Access and Encroachments – The property must feature year-round street access and cannot encroach onto neighboring land. Private roads necessitate maintenance agreements.

• Hazards – The home must lack natural hazards like flooding, sinkholes, or environmental toxins including radon, lead paint, or asbestos.

• Water Supply – Adequate provisions for drinking water, hot water, and sanitation are required. Septic or sewage systems must function properly.

• Utilities – The home should have working electrical, gas, HVAC, and other utility systems.

• Structural Integrity – The roof, attic, basement, and crawlspaces must be sound and free of pests, mold, or water infiltration.

• Pest Control – Any termite, insect, or other deterioration damage must be noted. Structural impacts must be specified.

• Drainage – The site should facilitate proper drainage away from the foundation with no pooling near the home.

• Pools – If present, pools must meet safety standards with functioning equipment.

• Airport Noise – For homes near airports, potential noise or other disturbances require disclosure. Some additional steps may be necessary depending on the location.

While the MPRs may seem extensive, they aim to verify basic home quality for the protection of the veteran buyer. We will next explore the process if a property fails to meet one or more requirements.

What To Do If the Home Fails VA Minimum Property Requirements

If the appraisal uncovers deficiencies related to the MPRs, you have several options:

• Request seller repairs – Ask the seller to remedy the identified issues so you can proceed with closing. Common repairs involve updating aged or defective mechanical systems, treating pest damage, replacing leaky roofs, or improving drainage.

• Cancel the sale – If repairs appear too extensive or costly, cancel the transaction. This route makes sense if the home requires major renovations to become livable and qualify for financing.

• Seek an MPR waiver – As an alternative, you can request a waiver of the failed requirement through the lender and VA. The deficiency cannot compromise safety or sanitation. Waivers only apply on a case-by-case basis, so consult your lender.

• Ask for a re-inspection – If you or the seller complete repairs, you can request a re-inspection to verify MPR compliance. This allows the transaction to hopefully move forward.

• Appeal the appraisal – As a last resort, you can dispute the appraiser’s determination if you have evidence indicating an error or contradiction with VA guidelines.

In most cases, minor repairs or clarification from the appraiser should resolve any MPR-related snags. More significant issues may require cancelling or renegotiating the deal.

What To Do If the Home Appraises Below the Sales Price

Another potential appraisal hiccup involves the home valued below the agreed upon sales price. Since lenders cannot finance more than the appraised amount, you will need to address this gap. Here are some options if you encounter a low appraisal:

• Ask the seller to reduce the price – Some sellers will agree to lower the price to the appraised amount to prevent the deal from falling through. This allows the transaction to proceed as planned.

• Pay the difference in cash – If you want the home regardless of the low appraisal, you can pay the difference in cash. This will require a larger down payment.

• Walk away – Lastly, you can cancel the contract since securing financing for the original sales price is impossible. If your contract contained an appraisal contingency, you should get your earnest money deposit returned.

The best approach depends on factors like how much the appraisal misses the contract price, the seller’s willingness to negotiate, and your budget flexibility. Discuss with your lender to understand your choices fully.

Frequently Asked Questions about VA Appraisals and Inspections

Many borrowers new to the VA loan process have lingering questions concerning appraisal and inspection requirements. Here are some of