Are you considering taking out a VA loan? A real estate appraisal is one of the essential requirements for getting your loan approved. While it’s similar to the home inspection, it’s still very different.
When applying for a mortgage to buy a home, the lender or bank usually does an appraisal to determine the home’s value. For a VA loan, lenders hire a VA-approved appraiser. This detailed guide is about the VA loan appraisal and how it differs from a home inspection.
What Is a VA Loan Appraisal?
If you’re applying for a VA loan, the assessment will be done by an entity certified by the United States Department of Veteran Affairs. It’s an essential requirement for approval. The appraisal of the market value allows the appraiser to estimate the value of the property you’re buying or refinancing.
The appraiser not only estimates the market value of your home but also verifies that the home meets the minimum property requirements. The U.S. Department of Veteran Affairs establishes these requirements.
The value of the property you buy or refinance is estimated by evaluating the house. It’s then compared to the sales price of similar properties.
An appraisal is essential whether or not you’re applying for a VA loan. Here’s why.
⦁ You can ensure you’re not overpaying for your home with an appraisal.
⦁ With the estimated value, your lender can analyze how much they can lend you. They cannot lend you more money than the property is worth.
⦁ You can analyze the basic safety and livability of the house because the appraiser has to inspect the property and ensure it meets basic requirements.
VA Appraisal vs. Home Inspection: What’s the Difference?
VA appraisal is not a complete home inspection. The appraiser approved by VA evaluates the house by looking only at the surface. A home inspector analyzes every nook and cranny. A home inspection is performed to determine if there’s anything wrong with the house or if something could go wrong in the coming years.
While a home inspection is quite comprehensive, a VA appraisal, on the other hand, is very narrow in scope. The main job of a VA -approved appraiser is to determine the market value of the property. Then the lender can approve the loan based on the home’s value. This also ensures that the house has a sufficient loan-to-value in case you default.
According to the Department of Veteran Affairs, VA appraisal is essential to the loan process. In addition to estimating the value, VA ensures the home is sanitary and safe. The appraiser also provides the residence is habitable for the veteran and won’t harm them financially or physically.
What is a VA Energy Efficient Mortgage ( EEM)?
If you are buying a home and want to make some improvements to save on energy, there is nothing better than a VA EEM. EEMs could increase your home’s energy efficiency and help you save money on utility bills. Such improvements to your home are significant in reducing your carbon footprint. However, to qualify for an EEM, additional value beyond the original appraisal must be in the house.
An energy-efficient mortgage is a type of loan that the US Department of Veteran Affairs offers. This loan program is provided to veterans who qualify for energy-efficient home improvements.
All eligible military borrowers can use energy-efficient mortgages for projects of all sizes. Similar to VA loans, these mortgages are also available at lower rates. These mortgages do not have a specified limit. You can borrow as much as your lender would approve.
How Do VA Appraisals Work With Energy-Efficient Mortgages?
Living in a green and eco-friendly home isn’t only good for the environment and affordable in the long run. By making energy-efficient improvements to your home, you can lower your energy bills, receive tax credits, and reduce your home’s environmental footprint.
When you apply for an EEM, you can choose between an adjustable or fixed-rate mortgage. Under the VA program, you can add up to $6,000 in qualified improvements to your loan.
However, you should keep your home appraisal-ready if you apply for this loan. With the help of a VA appraiser, a lender will verify that the benefits of the planned upgrades would offset the costs. The auditor must evaluate your home’s energy efficiency and tabulate a score accordingly. A higher score indicates low energy efficiency.
The report prepared by the VA-approved auditor will include a list of recommended improvements. It also provides information on expected annual savings. You must pay a fixed fee for these audits.
Types of VA Energy Efficient Mortgage
The VA energy-efficient mortgage is a good option when you are looking to streamline your finances or refinance your property. It is a great way to finance these improvements, especially when applying for a VA loan.
Here are some improvements you can make to your house with VA EEM.
⦁ Adding solar panels to the roof
⦁ Installing a new solar heater to the house or insulating the current one
⦁ Installing storm windows and doors
⦁ Adding new insulation to the ceiling or walls
⦁ Adding a thermostat to your home
⦁ Installing weatherproofing additions like caulking
The energy-efficient updates you will make to your home should be permanent. Hence, there are a few updates that won’t qualify these loans. This would include the following:
⦁ Adding window or central air conditioning units to the home
⦁ Installing energy star-rated appliances
⦁ Installing new roof or shingles to the unit
⦁ Adding vinyl siding to the house
What Happens if the VA Appraisal Is Low?
If you get a low VA appraisal, it can throw off your entire home-buying process. The loan amount approved by VA cannot exceed the property’s appraised value. If the VA-approved appraiser estimates the market value to be lower than the property’s sale price, they will inform the lender.
You may ask the lender or appraiser to reconsider and re-evaluate the property’s price. This request must be made in writing. The staff at VA will review the appraisal report and any additional market data submitted and decide if the appraised value should be increased.