How a VA Loan Home Appraisal Differs from Conventional Financing

Marcus Marion, CMA™ 4 weeks ago 0 8

VA loans differ from conventional mortgage loans in several ways. For example, VA loans allow eligible borrowers to skip the down payment, while conventional financing almost always requires a down payment.

VA loans also differ when it comes to the home appraisal process and requirements. The VA home appraisal has two primary objectives—to determine value and assess the condition—while a conventional loan appraisal primarily focuses on value.

Overview of VA And Conventional Loans

Before we talk about appraisals, let’s lay some groundwork by defining VA loans versus conventional mortgage financing.

A VA loan is simply a mortgage loan that receives a partial guarantee from the U.S. Department of Veterans Affairs. This special type of mortgage financing is available to military members, veterans, and certain qualifying spouses. VA loans offer 100% financing, flexible qualification criteria, and other important benefits.

A conventional loan, on the other hand, does not receive any kind of government insurance or guarantee. They are originated (and sometimes insured) within the private sector without any direct government involvement.

So in a broad sense, there are two main types of home loans. Borrowers can choose between government-backed mortgage programs like VA and FHA, as well as conventional or non-government-backed home loans.

With that distinction out of the way, let’s talk about the purpose of a home appraisal and how that process actually works.

Definition and Purpose of a Home Appraisal

A home appraisal is an unbiased assessment of a property’s value, conducted by a licensed or certified professional known as an appraiser. Home appraisers consider various factors such as the property’s location, size, condition, and comparable sales in the area.

The goal of the appraisal is to determine the fair market value of the property, which is the price it would likely sell for in the current market.

Most lenders require a home appraisal as part of the mortgage approval process. They want to ensure that the property being financed is worth the amount of money being loaned.

In short, the appraisal helps the lender protect their investment and reduce risk. It also prevents them from lending more money than the property is actually worth. This is true for all types of home loans, including FHA, VA and conventional.

Simplified Overview of the Home Appraisal Process

The home appraisal process can vary from one real estate transaction to the next. But it usually follows a predictable sequence, as outlined below:

  1. The lender orders it: When you are far enough along in the mortgage process, your lender will choose an appraiser and order the appraisal.
  2. Appraiser review: The appraiser will conduct a thorough evaluation of the home, both inside and outside. They take photos and notes on the home’s condition, size, features, and any upgrades.
  3. Comps and research: The appraiser will research recent sales of similar homes (“comps”) in the same area and analyzes market trends.
  4. Appraisal report: The appraiser will compile his or her findings into a report. This determines a fair market value for the property based on their professional opinion.
  5. Loan decision: The lender uses the appraisal report, alongside other factors, to decide whether to approve your loan and at what terms.

These steps apply to both VA and conventional home appraisals. But with a VA loan, there are some key differences when it comes to the appraisal process. So let’s explore those important differences.

How the VA Appraisal Process Is Different

As mentioned earlier, a VA loan home appraisal has two purposes. And we’ve already covered the first objective.

The appraiser wants to determine the current market value of the home, based on the property’s overall condition and local market factors.

But the Department of Veterans Affairs also requires appraisers to assess the property condition. In fact, the VA maintains a set of Minimum Property Requirements, or MPRs, to guide appraisers through the process.

This is different from a conventional mortgage loan that’s not backed by the government. With a conventional home loan, the appraisal solely focuses on determining the market value of the property. They only consider the property’s condition as it relates to the market value.

To put it differently: a VA loan home appraisal goes beyond a standard appraisal in the sense that it has a “mini inspection” built into it.

In their official guide for home buyers, the Department of Veterans Affairs states:

“The appraisal provides an appraiser’s opinion of value of the home and whether it meets VA’s minimum property requirements. It also assures you and your lender that the value of the property is based on facts and market data, not just the seller’s opinion.”

But they go on to explain that the appraisal is not the same as a full home inspection. While the VA does require appraisers to evaluate the home’s condition, they do not require a full and comprehensive home inspection.

They also encourage buyers to have an inspector “thoroughly inspect the home for defects and potential maintenance issues.”

Negotiating With the Seller

VA loan home appraisals also differ from conventional appraisals when it comes to the negotiating process.

With a conventional loan, a home buyer will probably be required to have an appraisal. But the inspection process is usually optional. And if the buyer does choose to have an inspection, they can decide whether or not they want to ask the seller to make repairs.

A VA loan home appraisal works a little differently. If the appraiser determines that the property does not meet the VA’s minimum property requirements for some reason, the seller will have to address that issue before the loan can move forward.

However, despite common misconceptions, VA home appraisals are not overly strict or “nitpicky.” Most of the Minimum Property Requirements have to do with basic health and safety issues. They’re meant to ensure that the property is habitable for the new occupant.

Even so, there are some important differences between VA and conventional appraisals when it comes to repair requests and seller negotiations.

Choosing the Best Mortgage for Your Situation

Ultimately, you have to choose the type of mortgage loan that works best for your particular situation. And for a lot of military members and veterans, the VA loan program offers more benefits than drawbacks.

This program allows you to buy a house with no down payment and no mortgage insurance, eliminating a major obstacle. It’s also one of the easiest types of home loans to qualify for.

This article is not meant to steer you toward a specific type of home loan. Our goal here is to explain the key differences between VA home appraisals and the appraisals used for conventional financing, so you can make an informed decision.

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