Most of the problems that occur when using VA loans usually stem from misinformation. Some agents simply don’t have much experience with VA Loans and are unsure of the process and all the benefits it can provide. For example, many agents think it’s not worth pursuing since they believe there are always extensive repairs to be done after the appraisal is completed.
MANY LENDERS ARE UNFAMILIAR WITH VA LOANS
Instead of just avoiding using a VA loan, lenders should consult those who are thoroughly familiar with the process, such as those in the Vetted VA program. Many are willing to help other professionals that are less proficient in the lending or appraisal process.
The VA program is unique in that it is truly the only “Zero Money Down” program that is available. Many veterans can get in with no money down, a lender credit, and have a small amount of money saved in the bank. This all relates back to the appraisal.
Typically, on a conventional loan, the state of the property is looked at and assessed. It’s uncommon to have someone come back and ask for repairs unless there’s something majorly wrong. They are just going to assess the property in its current condition and give you a value based on that for the VA.
Find a Vetted VA Professional in your state.
MINIMUM PROPERTY REQUIREMENTS
Similar to an FHA loan, an assessment for a VA loan will be done for “minimum property requirements,” which would impact the health and safety of those within the home. It’s better for the borrower as it’s ensuring that the home isn’t going to make them sick or expose them to any type of injury due to any structural or cleanliness problems.
The appraisal isn’t designed to make it harder to get a loan. It has a better intention of serving the borrower by providing a loan for a safe home.
This can make some sellers apprehensive because it might reveal some harsh truths about their property and create some out of pocket repair expenses for the seller or the buyer.
These repair costs can be escrowed. The money could also be put aside and the repairs could be done after closing. There are several options available to veterans (similar to an FHA loan) than just having to pay for the repairs outright.
Some agents go out of their way to make sure they’ve met the minimum qualification standards such as painting a home themselves. Others have replaced a door or a window just to get the loan to closing. They may even hire a friend to fix minor issues to limit the repair costs.
At the end of the day, it’s for the betterment of the buyer.
APPRAISAL CONTINGENCY PLANS
Each state or county has a different timeline requirement to make the repairs necessary to pass the minimum qualification standards.
However, with a VA Loan, the VA assigns the appraisal themselves and are responsible for the timelines. It’s actually a better process than other types of appraisals. So when listing agents don’t want to deal with VA appraisals because of their qualification standards, it is based out of a lack of knowledge or fear of the unknown.
Learn more about appraisal contingency plans from a Vetted VA professional.
ESCAPE CLAUSE, APPRAISAL GAPS, AND TIDEWATER
There is an “escape clause” for VA and FHA loans where buyers can waive the appraisal contingency and say they’ll cover any gap. Also, if there is a gap appraisal, a cap can also be put on the amount the buyer is willing to pay.
However, there’s no timeline on a VA loan for an appraisal gap. For a conventional loan, if the buyer and seller don’t come to an agreement after an appraisal gap, the deadline is written in the contract.
If the appraisal comes in low, the process of the VA handling this over a conventional loan is better for everyone. This is called the Tidewater, which means the appraiser came up with a different amount than the contract price and the rep needs to come up with some comps (comparable sales) that support that value in the contract. The best few comps are sent to the loan officer and then the top three are sent to the appraiser.
There’s a lot of misconception that the VA appraisals always come in low and it’s simply not true. Most don’t have experience with Tidewater or reconsideration of value. Many don’t even know what it is.
Find someone who has experience with Tidewater and reconsideration of value.
RECONSIDERATION OF VALUE
A reconsideration of value is a formal process where the agent looks at all the comps and writes up a case of why they think the value is different. They ask for a reasonable number, something that would be agreeable to the VA. This doesn’t take too long, maybe less than a week.
An example would be if an agent gets a message that the appraiser doesn’t see the same value. He or she would then invoke Tidewater and then have 48 hours to find additional information to explain the appraisal gap.
It can be done as a list of comps and adjustments or even in a narrative form, where the agent would notate desirable parts of the property such as neighborhood, views, and proximately to law enforcement. This has a ton of value for the seller since they can highlight their own opinions on their property and translate that into dollars and the appraised value. Even though these do happen, the narrative form of doing a reconsideration of value isn’t as successful as a detailed list of comps and adjustments.
This also shows the extra mile that VA lenders have to go through to fight for making the deal succeed. When buyers and sellers learn about the process, it builds their reputation, and ultimately is better for everyone involved.