VA Appraisal | What if It Comes Back Low? 2024
One of the biggest hurdles VA home buyers must clear is the VA appraisal. VA appraisals are much like regular appraisals — an approved appraiser will come out to the house you’re looking to buy and establish its value.
The main difference is the VA has stricter guidelines when it comes to houses. The U.S. Department of Veterans Affairs is a government agency that guarantees VA home loans, so they want to make sure the new home meets its standards.
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VA loan appraisal process 2024
The VA appraisal process is very similar to any other home appraisal. Your VA lender will order an evaluation with a VA-approved appraiser as a part of the loan process.
The VA appraiser’s job is to establish a “fair market value” for the property and ensure the home meets the VA’s Minimum Property Requirements (MPRs). For example, they will check the attics, crawl spaces, and water supply. They’ll also make sure the house is free of termites, dry rot, and lead-based paint.
If the property meets the MPRs, then the VA loan process proceeds. If the requirements aren’t met, then a property may not qualify for a VA loan.
Is the appraisal a home inspection?
No, it’s important to distinguish between the VA appraisal — which is intended to ensure that the property’s value is congruent with the amount of the loan, and that it meets the VA’s requirements for habitability — and a home inspection.
An inspection is a more in-depth evaluation of the home. It is not necessarily required by the VA and not part of the eligibility requirements for a VA loan. however, smart borrowers will likely want to order a home inspection as well.
Check your VA home buying eligibility. Start here (Nov 21st, 2024)
What if the VA appraisal comes in too low?
Unfortunately, VA appraisals can work against the home sale. If a VA appraisal comes in low compared to the loan amount, problems can occur.
For example, a home on the market for $275,000 can get a VA offer with all $275,000 financed. But if the VA appraisal report says the home is only worth $265,000, then suddenly the VA will only finance up to $265,000. This means the VA home buyer needs to make up the $10,000 difference between the purchase price and the appraisal value.
But even if your VA appraisal comes in low, you have options.
Getting a reconsideration of value
If a VA appraisal comes in low, a reconsideration of value (ROV) could be the best option.
An ROV is when the VA reevaluates how much the home is actually worth. Depending on how it goes, it could completely change the VA appraisal.
One way to get an ROV is to find better comps. “Comps” is short for “comparable homes” or “comparable sales”: similar homes to the one you’re trying to buy. If you can find comps closer to your expected price range, the VA may reevaluate their decision. For example, a similar home with no view may be valued the same as the home you’re buying. But that view has a market value, and you can make the argument the home should be valued higher.
There’s also always the chance the appraiser made an error in valuation, or they missed something when appraising the house. If this is the case, then a new appraisal could shift the value of the property in the borrower’s favor.
While they help some VA buyers, ROVs don’t always work out. If the appraised value is still too low, there are other ways to avoid paying huge costs to make up the difference.
Ask the seller to lower the sales price
One of the most common ways VA home buyers get around a low appraisal is by getting the seller to lower the sales price. Some homes are overvalued, and a low VA appraisal should be a wake-up call to the current homeowner that their home might not be worth what they think. They could then lower the asking price to the same value as the appraisal, clearing the way for the VA loan to go through.
Cover the ‘appraisal gap’ in cash
Another possibility is that you, the home buyer, cover the additional costs that exceed the mortgage loan. There’s a good chance you’ll have to cover the costs from out of pocket, meaning cash, if the downpayment is too low or if no downpayment is being paid at all.
Split the gap between buyer and seller
Then there’s the compromise between buyer and seller to split the additional costs equally. So, in our scenario where an additional $10,000 is owed, the seller would reduce the purchase price by $5,000 and the buyer would make up the additional $5,000.
Negotiate the extras
Along with these options, there are other ways to reduce the cost of the home. It’s common for home sellers to include appliances and/or furniture with the sale, including the costs in the total price. Unfortunately, VA appraisers won’t include this – their job is to evaluate the value of the home without including anything in it. Choosing to let the buyer keep the appliances can lower the total cost of the loan without changing the value of the house.
If all else fails, walk away
If there’s no way around the low VA appraisal, then you should always be prepared to walk away from the deal. VA appraisers are professionals, and they have to be certified by the VA to evaluate homes. If sellers are unwilling to budge or your Realtor cannot work out a new deal, it could be in the buyer’s best interest to find a different house. It’s not the happiest of endings, but it could be worth avoiding large, out-of-pocket payments just to get the specific home.
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Common VA appraisal problems & what to do
A VA appraisal is a critical part of the homebuyer process for veterans. The hope is that you encounter no issues and sail smoothly to closing. But some VA buyers will face appraisal problems.
Here’s what to do if you run into VA appraisal problems:
Repairs ordered
The Department of Veterans Affairs requires that all properties meet a list of ‘Minimum Property Requirements.” This list aims to make sure that veterans are moving into homes that are safe, sound and free of any living hazards.
Unfortunately, some homes will not meet these basic criteria. With that, the VA appraiser may order repairs before closing can occur.
If the appraisal comes back with ordered repairs, it is important to be open with the seller. Ask your real estate agent to share the list of required repairs. Let them know that you are unable to move forward with the home purchase unless these repairs are completed, due to the restrictions of the VA loan. In some cases, the seller will comply easily with the repairs or negotiate a new price that factors in the repairs for a smooth closing.
If the seller is unwilling to complete the repairs, then a VA homebuyer will not be able to move forward with the purchase.
Low appraisal value
The fast pace of the current market means some homes may be appraised low. If you receive a low appraisal, you can ask for a Reconsideration of Value from the VA.
If the reconsideration doesn’t affect the appraisal value, negotiating with the seller for a better price is an option. But in a hot market, most sellers will be unwilling to leave any money on the table.
If this happens, you have the option to make up the difference in cash. However, that may amount to more money than you have available. You may have to walk away from the sale if you’ve exhausted all of your options.
How to avoid VA home appraisal issues
VA appraisals aren’t as complicated as they may seem. There are early signs homebuyers can find to tell if a home will clear an appraisal or not. Here are some tips to find out more about how to avoid VA appraisal issues during the home buying process.
The VA appraisal process doesn’t need to be intimidating so don’t let it deter you from taking advantage of one of the best mortgage products on the market.
Check your VA home buying eligibility. Start here (Nov 21st, 2024)
VA appraisal FAQ
Are VA appraisals typically low?
No, VA appraisals are not typically low. If you are looking at a VA mortgage, you may have heard the myth that VA appraisals are typically low. The good news is that is not the case. When an appraiser shows up to determine the value of a home, they aren’t looking at the type of loan you want to use. Instead, they are looking at the home’s features to determine its value.
How often do VA appraisals come in low?
Like any other type of appraisal, VA appraisals can come in lower than you expected. The unfortunate reality is that some homes are overpriced by the seller.
According to Fannie Mae, appraisals come in low around 8% of the time. With that, borrowers seeking a VA loan may find their appraisal comes in low. But borrowers with other types of loans are in the same boat.
How do I fight a low appraisal?
If a VA appraisal comes in low, you have the chance to appeal. Whether you are the buyer or seller, you can request a formal Reconsideration of Value.
With this, you may present facts about the property that the original appraisal may have overlooked. A few important facts could be recent sales of comparable homes in the area, errors on square footage, omitted upgrades, and more.
To challenge an appraisal, you can present these facts to the mortgage lender in writing. At that point, the original appraiser will consider the information. They may or may not adjust the appraisal amount. If the appraised value isn’t raised, you can ask for a letter detailing their reasoning.
If you are seeking a valuation change of more than 10%, the lender will send the request to the Department of Veterans Affairs. In that case, a member of the agency will review the original appraisal and submitted facts to issue a revised value.
What happens if the appraisal comes back low for the buyer?
If the appraisal comes back low, the lender will not lend more than the appraised amount. With that, the buyer will have the opportunity to make up the difference. The buyer can negotiate with the seller for a lower price or pay the difference out of pocket.
Does the borrower have to complete the sale if the appraisal comes in low?
If a home’s appraisal is lower than expected, the buyer may be able to walk away from the sale if there is a contingency clause in place. The contingency would allow buyers to not complete the sale without losing their earnest money.
With this in mind, a buyer should never waive their appraisal contingency unless they are willing to make up the difference out of pocket or lose their earnest money.
Is a second VA appraisal possible?
If a VA appraisal comes back with a significant error, you can challenge the report. In some cases, you can present facts about the property that the original appraisal may have overlooked. For example, the appraiser may have missed the fact that you are on city water or have miscalculated the square footage of your home.
With this document submitted, the appraiser may reevaluate their determination and adjust the property’s value. If not, you can appeal to the Department of Veterans if you are trying to adjust the property’s value by more than 10%. At that point, a VA employee will look at the documents to reissue a valuation.
If you are pursuing a VA Streamline Refinance, an appraisal isn’t required by the VA. However, your lender will likely require an appraisal to finalize the loan.
Do I need a VA appraisal for a refinance loan?
If you are pursuing a VA Streamline Refinance, an appraisal isn’t required by the VA. However, your lender will likely require a regular appraisal to finalize the loan.
The bottom line
While a VA appraisal is an additional step in the home buying process, the VA home loan program remains a wonderful option for eligible borrowers, including active-duty service members, veterans, and surviving spouses.
The VA wants to make sure that the property is in good condition and that the borrower is buying a home that is worth what they are paying.
Even first-time borrowers need not be intimidated. An experienced loan officer can walk you through the VA appraisal process and help get you on the path to homeownership.
A VA loan offers significant benefits, including zero down payment and competitive interest rates. The financial benefits are likely to be well-worth the extra business days required to complete a VA appraisal.
Check today’s VA rates (Nov 21st, 2024)
