Are you a veteran or active duty service member looking to buy a home? The home buying process involves several factors, but the real estate appraisal is the one that makes many people nervous. However, this process does not need to be overwhelming. In this article, we are going to help you understand what an appraisal is, why you need one, and what the differences are depending on the type of mortgage (VA or conventional).
You see, it does not matter if you are applying for a loan backed by the Department of Veterans Affairs (VA) or a loan backed by a private lender. In either case you should have an appraisal performed on any property you decide to buy. Let’s discuss what an appraisal is and how it is different from a home inspection. Then we will look at VA loan appraisals vs. conventional appraisals.
What is a Real Estate Appraisal?
A real estate appraisal is the process used to determine the value of a home. The appraisal is performed by real estate appraisers who are licensed or certified professionals. The appraiser is working for an independent company and is not connected to the real estate agents or the mortgage lender.
The real estate appraiser is responsible for preparing a detailed report which should at the very least include the following:
- A prepared list of comparable homes that have recently sold. They should be in close proximity with similar age, size, and features as the home you are applying to purchase. (AKA Market Comparable Analysis).
- An assessment of the condition of the home and property, documenting any signs of damage or negligence that could lead to health and safety issues. It also documents any additions or extra features that would enhance the value of the home.
As you can see, the purpose of the appraisal is to ensure that you are buying a home that is priced in a way that is in line with the current condition and actual value. The sale price should be at or below the appraised value, preventing you from investing more money into a home than it is worth.
Is a Home Appraisal the Same Thing as a Home Inspection?
It is important to note that a real estate appraisal and a home inspection are not the same thing. Both types of loans, conventional and VA, require a home appraisal for loan processing, whereas a home inspection is optional and will not have an impact on the loan process. The appraisal is important for ensuring you are purchasing a home that has value.
Even though it is not required, you should consider having a home inspection done, as it really is quite different and has added benefits for a potential home buyer. An inspection gives you a detailed report of any possible issues you could be faced with and ensures that you’re purchasing a quality home.
What are the Main Differences Between VA and Conventional Loan Appraisals?
When it comes down to it, there are two main differences between VA and conventional loan appraisals: the appraiser and the guidelines.
Who Will Perform the Home Appraisal?
The Department of Veterans Affairs does not employ real estate appraisers. Instead, VA lenders are required to contract with private companies that have VA certified appraisers. These appraisers are qualified to assess the property’s value and make sure the property has safe living conditions.
Private lenders for conventional loans also contract with private companies that have certified appraisers. These appraisers are also highly qualified, however, they do not have the extra training that is required for VA appraisers.
What are the Guidelines?
The Department of Veterans Affairs uses a guideline for homes purchased with a VA home loan. The goal of the guideline is to ensure that the property meets the VA’s Minimum Property Requirements (MPRs). The purpose of the requirements is to ensure that the homes meet certain standards and do not have any issues such as:
- Electrical, plumbing, and heating issues
- Major appliances not working properly
- Broken or missing handrails
- Chipping or lead based paint
- Leaky or collapsing roofs
- Code violations
- The presence of WDOs (wood-destroying organisms)
- Foundation or crawl space issues
Conventional home loans do not have the backing of the federal government like VA loans do. These lenders will commonly use the guidelines established by Fannie Mae and Freddie Mac. Rather than having specific standards that homes must meet, a conventional loan appraiser will focus on whether the requested loan amount aligns with the appraised value of the home. The standards that determine a conventional appraisal include the following:
- Condition of the property (this includes the age, problems with the structure, roof, appliances, etc)
- Location of the property
- Value of comparable homes
Deciding Which Loan is Best for You and Your Family
Overall, an appraisal report brings confidence that you are buying a home that is priced properly with the marketplace, is structurally sound, and is in optimal condition for you and your family to live in. All this is to protect your investment as the home buyer and those who are backing your loan.
At VA Loans for Vets, our goal is to help veterans and active duty service members purchase the home of their dreams. If you need help deciding which loan may be best for you and your family, give us a call at 602-908-5849 and we will be happy to answer your questions and help you start your VA home journey.