Can VA Loans Waive Appraisal?

The VA loan is a popular mortgage option for eligible military members, veterans, and their surviving spouses. This government-backed loan offers competitive interest rates and requires little to no down payment.

One key component of the VA loan process is the appraisal. An appraisal is an evaluation of the property’s market value. It assures the lender that the home is worth at least the loan amount.

Many borrowers wonder if it’s possible to waive the appraisal requirement when getting a VA loan.

VA loans generally require an appraisal to protect both the borrower and the Department of Veterans Affairs. However, in certain situations such as a streamline refinance, loan assumptions by a spouse or joint veteran/spouse, or when a deceased veteran’s spouse is purchasing their shared home, the VA may waive the appraisal requirement.

Let’s take a closer look at appraisal guidelines for VA loans and when waivers may be possible.

Why Are Appraisals Required for VA Loans?

VA loans require an appraisal because the Department of Veterans Affairs guarantees a portion of these loans. If the borrower defaults, the VA pays off the remaining loan balance.

Appraisals protect the VA from potential losses. An accurate valuation ensures the property’s value sufficiently covers the loan amount. This way, if the VA has to foreclose, they can recoup costs by selling the home.

Appraisals also protect the borrower. VA guidelines prohibit borrowers from paying more than the home’s reasonable value. The appraisal prevents borrowers from overpaying.

For these reasons, appraisals are standard for most VA loans. However, there are some cases where the VA will waive this requirement.

Can You Get a VA Loan Without an Appraisal?

Can VA loan borrowers waive the appraisal contingency? Generally, no. The appraisal contingency simply allows the borrower to back out if the appraisal value is lower than expected. This does not waive the appraisal itself.

While appraisals are typically required, the VA may offer flexibility in certain situations.

When Can a VA Loan Waive an Appraisal?

The VA has a few scenarios where borrowers can obtain a loan without a full appraisal:

1. Streamline Refinance (IRRRL)

Borrowers refinancing with a VA streamline refinance often skip the appraisal. These loans allow you to refinance an existing VA loan into a lower rate/payment without a credit check or income verification.

The VA figures the property value likely remains consistent. So they waive the appraisal requirement in many cases.

2. Certain Assumptions

The VA may also waive appraisals for loan assumptions. This involves transferring a VA-backed loan to a buyer when the original borrower sells the home.

If the buyer is the original borrower’s spouse or a joint veteran/spouse, the appraisal may be waived. The VA assumes the property’s value remains the same if the owners haven’t changed.

3. Deceased Veteran’s Spouse Purchasing Home

Surviving spouses of deceased veterans are eligible for VA loans when buying another home. If the spouse is purchasing the home they lived in with the veteran, the VA may offer an appraisal waiver.

They assume the spouse knows the property’s value, so an appraisal is not necessary.

Outside of these examples, the VA rarely waives the appraisal for a purchase loan or regular refinance.

What Are the Benefits of Getting an Appraisal with a VA Loan?

While appraisals add time and costs to the mortgage process, they also offer benefits:

Ensures you don’t overpay – The appraisal protects buyers from overpaying for the property. This prevents being “upside down” on the loan.

Helps support purchase price – Appraisals sometimes come in higher than the contract price. This allows buyers to negotiate a higher price with the confidence of the appraisal.
Provides an objective valuation – Appraisals offer an unbiased, third-party perspective on the home’s value. This is often more accurate than online estimates.
Allows for faster sales – Sellers may be more inclined to accept an offer with a financing contingency versus all-cash offers. VA appraisals facilitate this quicker process.

Enables access to other VA benefits – The Certificate of Reasonable Value provided by the appraisal is required to apply for other VA lending programs.

So in most cases, getting an appraisal is advantageous for VA borrowers despite the small upfront costs.

What Are the Drawbacks of Getting an Appraisal with a VA Loan?

While appraisals offer benefits, they can also create challenges:

Delays closing – Appraisal turn times average 10-14 days. Waiting for the report extends the closing timeframe.
Risk of low appraisal – If the appraisal value comes in lower than expected, buyers may have to renegotiate or pay the difference out of pocket.
Added fees – Appraisal fees range from $300-$600 on average. Borrowers must pay this upfront cost.

Inconveniences homeowners – Appraisers inspect the interior and exterior, which can intrude on owners.
May require repairs – Appraisers flag any repairs needed for VA minimum property standards. This may delay closing until fixed.
Stalls equity withdrawal – Low appraisals limit the amount borrowers can take cash-out with a refinance.

While inconvenient, most buyers agree the benefits outweigh the drawbacks of getting an appraisal.

What Happens if the VA Appraisal Comes in Low?

A low VA appraisal value is one of the biggest risks borrowers face. If the appraisal is lower than the purchase price, buyers have a few options:

Renegotiate the price – Most choose to negotiate with the seller to drop the price to match the appraisal.

Provide seller concessions – The seller can provide closing cost credits to make up the difference without lowering the sales price.
Pay cash – The borrower can pay cash to cover the gap between the sales price and appraised value.
Request a reconsideration – Buyers can dispute the value and request a second look from the VA.

Pursue alternative financing – Borrowers may choose a conventional loan or other option that allows the higher price.

Coming in with a solid offer and allowing time for negotiations can help buyers avoid hiccups from a low appraisal.

How to Request a Reconsideration of Value (ROV) if You Disagree with the Appraisal

If a borrower believes the appraisal did not accurately reflect the property’s fair market value, they can request a reconsideration of value (ROV). Here is the general process:

Notify the lender immediately of your intent to dispute
Provide supporting documentation, like comparable sold listings, to justify a higher value
Pay for a second appraisal if requested (usually around $200)

VA will review the details and determine if the value should be adjusted
The process takes 5-10 business days on average
If the reconsideration is approved, VA will issue a new Certificate of Reasonable Value

The lender can then move forward based on the updated valuation

While not guaranteed, an ROV offers borrowers a chance to appeal a low appraisal they feel is inaccurate. Borrowers can also work with other mortgage lenders who can waive appraisals.

Understanding the Role of Automated Valuation Models (AVMs) in VA Loans

Some lenders utilize Automated Valuation Models (AVMs) when making initial loan decisions. An AVM provides a quick property value estimate by analyzing public records and comparable sales.

Lenders may use AVMs to screen potential deals before ordering a full appraisal. However, the VA still requires a formal appraisal during the underwriting process. AVMs do not replace the human appraiser visit and report.

What Happens If Your Home Doesn’t Meet the Minimum Property Requirements (MPRs)?

The VA appraiser will check that the home meets the agency’s Minimum Property Requirements (MPRs). These are basic living standards regarding safety, structural soundness, and functionality.

If aspects like the roof, foundation, electrical, or plumbing do not meet MPRs, the borrower will need to complete repairs before closing. This helps ensure veterans are purchasing properties that are safe and habitable.

What Will Fail a VA Appraisal?

Here are some of the main things that can cause a VA appraisal to fail:

Structural Issues

Any major defects with the foundation, roof, walls, electrical, plumbing, or other structural components can result in a fail if repairs are needed to meet VA Minimum Property Requirements (MPRs). Common problems include cracked foundations, faulty electrical wiring, water damage, fire hazards, crumbling walls, and evidence of termites or other pests.

Functionality Issues

The home must have basic functional necessities like a fully working kitchen, functioning toilet, adequate heating, and hot water supply. Lacking any of these facilities or having components that are broken or damaged can cause an appraisal to fail.

Safety Hazards

Safety issues like broken railings, unstable stairs or decks, pools without proper barriers, and other risks can be grounds for failure. VA appraisers ensure the home passes basic safety standards.

Deferred Maintenance

Any repairs that are urgently needed but have been deferred, like a severely leaking roof or non-working furnace, can trigger a fail. The appraiser will flag any maintenance that materially affects the value or safety of the home.

Illegal Additions

Any home improvements or additions completed without proper permits, like converted garages or basements, can cause the appraisal to come back with a fail. The property must meet all zoning and code requirements.

Moisture Problems

Evidence of moisture damage, mold, water intrusion, or standing water in the basement are red flags. Chronic moisture issues may necessitate extensive repairs prior to passing.

Lead-Based Paint Hazards

For homes built before 1978, intact lead-based paint must be disclosed and addressed through stabilization or abatement measures. Peeling paint could require major remediation and delays.

The key is addressing any deficiencies upfront so the appraisal goes smoothly. Sellers can fix minor issues, but major fails often require the buyer to renegotiate or walk away.

How to Find an Approved VA Appraiser in Your Area

Borrowers cannot pick their own appraiser for a VA loan. Only appraisers approved by the VA can conduct these appraisals. Here are a few tips for finding one:

Ask your lender for a referral or selection of approved appraisers.
Search the VA fee panel appraiser list for your city or zip code.

Look for the ‘VA Approved’ credential on real estate appraiser websites and business profiles. This helps identify qualified appraisers.
Search online for appraisal firms that specialize in VA loans. They likely have approved appraisers on staff.
Ask local real estate agents for VA appraiser recommendations. Experienced agents often have go-to appraisers.

With some research, you can identify reputable appraisers with extensive VA loan experience to inspect your property.

Conclusion

VA loans generally require an appraisal because it protects the interests of both the borrower and VA. While appraisal waivers are possible in certain refinance and assumption scenarios, they are rare for purchase loans.

Despite minor drawbacks like fees and timing, appraisals provide critical value to borrowers by validating the purchase price. And options like ROVs allow borrowers to appeal low appraisals.

Overall, buyers benefit from having an appraisal completed by a qualified VA appraiser when using their VA home loan benefit. It provides peace of mind around the value of their largest investment.

FAQ

Who is eligible for a VA loan?

The following individuals are eligible for a VA home loan:

Active duty service members

Veterans
Surviving spouses of service members or veterans who died in the line of duty
Some reservists and National Guard members

Borrowers must have sufficient service time to qualify. There is no minimum credit score or down payment required.

What is the VA home loan process?

The VA loan process includes these primary steps:

Get pre-approved

Make an offer
Enter escrow
Order appraisal

Complete underwriting
Obtain COE (Certificate of Eligibility)
Close on time

Move in!

It is similar to a conventional mortgage timeline but with some added VA-specific steps.

What are the closing costs for a VA loan?

Typical VA loan closing costs range from 2-5% of the total loan amount. Specific fees include:

Origination fee – Up to 1% of loan amount
Appraisal fee – Typically $300-$600
Credit report fee – Around $25-$50

Title insurance fee
Recording fees
Survey fees, if applicable

The VA funding fee also applies unless the borrower makes a down payment of at least 5% or is exempt.

What are the interest rates for VA loans?

VA mortgage rates are competitively priced with conventional rates. They fluctuate daily based on market conditions. Currently, 30-year fixed VA rates are averaging around 5.0-6.5%.

VA loans do not have their own dedicated rate. Borrowers receive the same rate they would qualify for with a conventional loan.

What are the pros and cons of VA loans?

Pros

No down payment required
Lenient credit guidelines

Low closing costs
No monthly mortgage insurance
Can purchase with seller concessions

No prepayment penalties

Cons

Funding fee applies

VA loan limits impose restrictions
More paperwork/documentation
Slower process than conventional

Appraisal may delay closing

VA loans offer unique perks for eligible borrowers. The pros generally outweigh cons for most military buyers and homeowners.