Whether in the form of a low appraisal value or a litany of mandated repairs, VA appraisal challenges can be alarming. VA appraisal problems can slow down the process and even force buyers to restart the house hunt.
Fortunately, buyers and their agents have options for handling appraisal challenges. Read on for solutions to the two most common VA appraisal problems: mandated repairs and a low appraisal value.
But not all homes meet those criteria. Appraisers will carefully note any deficiencies and list all repairs necessary to bring a home up to VA standards. Those repairs must be completed before a VA loan can be finalized. What’s a buyer to do once repairs have been mandated?
Strategy 1: Ask the seller to complete repairs. Relay the list of VA-mandated repairs to the seller. Let the seller know that if the repairs aren’t completed, you won’t be able to purchase the property. With luck, the seller will understand the value of your offer and agree to make the needed repairs. Once the repairs are finished, an appraiser will conduct a secondary appraisal. Assuming all repairs have been properly completed, the loan process moves forward.
Strategy 2: Look for errors. If you suspect an appraisal error has been made, you may need to challenge the report. Perhaps the appraiser noted that you have well water instead of city water. Maybe the appraisal mistakenly reported that a handrail is missing on the back steps. Mistakes happen. A lender can petition the VA for an additional appraisal. Let your lender know about pertinent errors and ask if a secondary appraisal is a possibility.
Strategy 3: Walk away from the purchase. Appraisals can occasionally unearth devastating faults or costly surprises. If the appraisal uncovers problems that you’re not willing to deal with, walk away from the purchase. You may be out the cost of the appraisal, but that’s a small price to pay for your sanity.
Problem 2: Low appraisal value
Today’s rapidly changing market can bring equal volatility to appraisal values. A VA loan can’t be issued for more than the appraisal value, so a low appraisal can send buyers scrambling. Consider these three strategies for handling a low appraisal value:
Strategy 1:Ask the seller for a price reduction. Let the seller know the appraisal value came in below the sales price. Ask the seller to lower the sales price to equal the appraisal value. This is the most common solution to an increasingly common problem, especially in the current housing market.
Strategy 2: Ask for a Reconsideration of Value. A buyer can apply to the VA for a Reconsideration of Value (ROV) if the appraisal value seems mistakenly low. Buyers will need to provide supporting documentation such as the original Comparative Market Analysis (CMA) or details on other comparable sales that weren’t used in the original appraisal. Ask for your agent’s assistance, and remember that requesting an ROV doesn’t guarantee the VA will order another appraisal.
Strategy 3: Make up the difference in cash. Buyers can also choose to make up the difference between the appraisal value and the loan value in cash. But buyers need to be cautious before grabbing at this straw. It may not be wise to pay above the appraised value of a home, particularly if market values in your area are still declining.
Get it right from the start
What’s the best way to prepare for the VA appraisal? Pick a house in good condition and select the right professionals to assist you, including a VA-savvy agent and an experienced VA lender. Knowledgeable experts can steer you to sound homes and carefully guide you through the VA loan process.
Fannie Mae to Implement Changes to Conventional Loans
Beginning November 16th, 2013, Fannie Mae will be implementing several changes to its automated underwriting system with their Desktop Underwriter Version 9.1. This includes the elimination of the 97% option and the 3% minimum down payments that many of us have become accustomed to.
Fannie Mae Down Payment Increases
Desktop Undewriter® (DU®) is an automated underwriting system that helps lenders make informed credit decisions, and several of the changes will make it harder for some borrowers to qualify:
Down Payments: The minimum amount will increase from 3% to 5%. Homebuyers can still cover the entirety of the down payment with a cash gift from family. This will impact primary residences for all eligible property types including single family homes and condos
Loan Terms: The maximum length of a Fannie Mae loan is now 30 years, as they are eliminating their 40-year loan terms. Interest-Only (IO) loans are also being discontinued.
Tougher debt calculations for Adjustable Rate Loans
PMI: Fannie Mae monthly mortgage insurance (PMI) can still be removed when the borrower reaches 22% equity.
Homebuyers making a purchase with 97% financing must have their case file submitted through Destop Underwriter ® before the weekend of November 16, 2013. This does not guarantee approval, but allows for the possibility to keep this program as an option until eligibility expires.
Due to the timing restrictions involved, now is the time for homebuyers to act. Conventional loans can be complicated so let our expertise go to work for you!
Qualifying for a Conventional Home loan can be overwhelming, but when paired with a lender that specializes and understands the Conventional loan process, it is a match that can open the door to home ownership. For more immediate scenarios- click here to apply online for a Conventional mortgage today!