Homebuyers with minimal cash rely on government-backed loans to make their purchases. The Department of Veterans Affairs, which guarantees loans for veterans and certain relatives, requires no down payment. The Federal Housing Administration, which is open to veterans and non veterans, requires 3.5 percent down. Both guarantee reimbursement to lenders if loans fail. They require appraisals, which involve a thorough inspection and determine a value for the lender to use as a basis for the loan amount.
The lender hires an appraiser on behalf of the buyer, either directly through the appraisal company or through a third-party appraisal management company. The cost of the appraisal is passed on to the buyer and either paid up-front or at closing. Several factors affect the price of VA and FHA appraisals including: location, property type and size, the appraisal company's fee and the need for re-inspection. In general, the appraisal cost may not exceed what is considered customary and reasonable for a given marketplace. VA and FHA appraisals normally cost between $300 and $400.
VA and FHA lenders hire appraisers who are approved to participate in the government programs. Both have similar qualifying requirements, including an application process, experience in property appraisal, a background check and state certification or license. The FHA requires appraisers to pass a written exam to demonstrate knowledge of property valuation and the FHA's programs. The VA requires only a demonstration appraisal.
The VA and the FHA require properties to be free and clear of health and safety hazards. A home acts as collateral for the loan; therefore, the property's condition and marketability matter as much as the borrower's qualifications. VA and FHA appraisers must denote visible defects that affect structural soundness, such as wall and foundation cracks, signs of settlement, water pooling, termite infestation; faulty plumbing, roofing, electricity, heating and air conditioning systems. Both programs abide by a different set of property standards; however, the criteria is aligned in most ways.
Because an appraisal is a professional opinion of value, different appraisers may arrive at different values or find distinct defects for the same home. VA and FHA lenders ultimately decide whether deficiencies affect occupant health and safety or structural soundness. Repairs are automatically required for significant defects, but not for cosmetic or normal wear and tear. A VA appraisal is valid for six months and a FHA appraisal for four months. A second appraisal may not be used to support a higher sale price before the four-month period expires, unless the initial appraisal has material defects. VA appraisals for homes that are proposed or under construction remain valid for 12 months.
- Appraisal Press: Fees: New Rules, New Data
- VA: Appraiser Qualification Requirements
- VA Mortgage Center: VA Loans - Appraisals
- HUD: VA Minimum Property Standards
- Veterans United: How Tough is the VA Appraisal? 3 Factors to Consider
- Veterans United: 14 VA Appraisal Basics for Agents
- HUD: Mortgagee Letter 2010-08: HUD REO Appraisal Validity Period and Second Appraisals
- VAGuidelines.com: VA Appraisal Guidelines: How Long Notice of Value is Valid
Karina C. Hernandez is a real estate agent in San Diego. She has covered housing and personal finance topics for multiple internet channels over the past 10 years. Karina has a B.A. in English from UCLA and has written for eHow, sfGate, the nest, Quicken, TurboTax, RE/Max, Zacks and Opposing Views.