Properties Not Eligible For VA Appraisal

 

Deciphering the VA Lender’s Handbook Chapter 10 Part 5

 

There are some cases where a property is not eligible for a VA appraisal. This might have to do with the condition of the property, where the property is located, or the way ownership of the home is managed. Obviously, if the home is not eligible for the VA appraisal, it certainly will not be eligible for the VA guaranty. Even if a home is eligible for the appraisal, it still has to pass before it can be eligible for the guaranty. In all cases of a property not being eligible for a VA appraisal, the reasoning comes down to the VA’s commitment to making sure that veterans obtain suitable housing at better terms than they could otherwise afford. To be suitable, the VA requires that the home be in good condition, be permanently located, and give the veteran a certain level of autonomy in regards to ownership of the property.

 

A property that is not likely to meet the VA’s minimum property requirements is generally not eligible for the VA guaranty. If you’re looking for more information on what the minimum property requirements are (there are quite a few), check out our previous articles in which we discussed them. Not all the minimum property requirements are immediately apparent, but many are, and if the home is obviously not meeting them, then a VA appraisal will not be provided. The exception to this rule is if the VA agrees that there is a reasonable likelihood that the property can be repaired, altered, or improved to meet the requirements before the loan closes. There are also location-related issues that could disqualify a home from getting a VA appraisal.

Veterans get new home

One of these issues is if the home is in a Special Flood Hazard Area and either is proposed or new construction with the elevation of the lowest floor below the 100 year flood level, or flood insurance is not available for the home for whatever reason. Also, if the home is in an area subject to regular flooding for whatever reason, even if it is not in an SFHA, it may not be eligible for a VA appraisal. If the home is located is a Coastal Barrier Resources System area, an airport Noise Zone 3 (and is proposed or under construction), or within a transmission line easement involving high-pressure gas, liquid petroleum, or high voltage electricity. A home located in an area subject to earthquakes, landslides, or other geological instability may not be eligible if there is no evidence that either the home is in a specific place where it will not be affected by the geological instability or that the engineering of the home satisfactorily addressed it.

 

The VA maintains a list of approved condo projects; these are condo projects whose documents, agreements, and contracts are approved by the VA. If a condo project is not approved by the VA, then none of the condo units in it are eligible for the VA appraisal. If the condo project has been submitted to the VA for approval but approval has not come through yet, an appraisal can be conducted, but in order to avoid unnecessary appraisal fees, lenders and borrowers are counseled to be confident that approval will be granted by the VA before requesting the appraisal.

 

The VA loan program is intended to assist borrowers in purchasing homes, or in other words, to gain ownership of suitable housing. Therefore, in cases where the ownership of the property is not as straightforward as a typical home purchase, the property may not be eligible for an appraisal. These are cases like leaseholds, cooperatives, and ground rental arrangements. The VA must specifically approve each arrangement before an appraisal can take place. In order to submit the property ownership arrangement for approval, the lender needs to submit details of the ownership arrangement, copies of leases or other instruments creating the estate, and recommendations of the VA office of jurisdiction. These items need to be submitted to the VA Central Office. These sort of situations don’t come up too often, and it’s usually simpler just to find a different home that has a more conventional ownership agreement.

 

Veterans are Being Robbed of their Hard Earned Loan Benefits

I might get fired for posting this, but its worth it to me to explain to Veterans what is happening in the mortgage industry and specifically what so called new requirements many of the Nation’s Top Lenders are requiring to approve VA streamline refinances.  One of the main benefits of getting a VA loan is the option or ability to do a streamline refinance.  Basically a streamline refinance is where a Veteran gets a new mortgage at a lower rate without going through the hassle of credit check, appraisal and income verification.

HERE IS THE VA’S DEFINITION OF A STREAMLINE or IRRRL

“A Veteran who obtained a VA loan may refinance it with a VA guaranteed loan at a lesser interest rate without using additional entitlement.”  They go on the list restrictions and instructions with this refinance.  Here they are:

1. The new loan must be at a lesser interest rate than the old VA loan EXCEPT when refinancing an existing ARM with a new fixed rate mortgage.

2. The dollar amount of guaranty applicable to the prior VA loan is transferred to the new loan.

3. Although no underwriting IS REQUIRED, approval of new credit may be required by the trustee in a Chapter 13 BK

4. NO APPRAISAL IS REQUIRED.

5. The Veteran may not obtain cash proceeds.

6. The new loan is limited to the balance of the old loan, the funding fee, up to $6000 of energy efficient improvements, and allowable closing costs including not more than 2 discount points.

7. The term of an IRRRL any not exceed the original term of the loan being refinanced by more than 10 years.

The one that I want to draw attention too is number 4.  The no appraisal option is what makes this one of the best ways for a Veteran to refinance his/her home.  Some Lenders have taken upon itself to overwrite the VA’s policy and start instituting appraisals on VA streamline refinances starting July 1st.  Here is the email I received from them:

Non-XXXXXXX  (lender name removed) VA Interest Rate Reduction Refinance Loan (IRRRL) Transactions

May Require A Conventional Appraisal – Effective 7/1/09

In an effort to mitigate the risk of declining home values on VA IRRRL transactions, effective with registrations on and after July 1, 2009, for non-XXXXXXX serviced VA IRRRLs, XXXXXX  Wholesale Lending will require the Broker to obtain and deliver to XXXXXXX:

• A conventional appraisal that supports the total loan amount (appraised value >= base loan amount plus VA funding fee), or AVM that supports <=95% LTV

Note: Conventional appraisals ordered for non-XXXXXX serviced VA IRRRL transactions are not subject to Home Valuation Code of Conduct (HVCC) requirements. Additional comments and/or reminders:

• If a conventional appraisal is not in the loan file upon receipt, XXXXXX will order an AVM to verify the value. AVMs are not allowed for condominiums, manufactured homes, multi unit properties (2-4 unit), investment properties and second homes. If the AVM does not return an acceptable result, XXXXX will condition for a full appraisal. • It will be the responsibility of the broker to order the full conventional appraisal.  VA has indicated this appraisal should not be ordered with the case number assignment through VA’s The Appraisal System (TAS) and should not be submitted to VA with the guaranty package.

o VA’s Jurisdictional Maximum VA Appraisal Fee Chart must be met. The Veteran may not be charged an appraisal fee exceeding VA’s maximum.

o The 1004 MC (Market Conditions) form is required when an appraisal is required.

o XXXXXX  Appraisal Policy applies (Broker Guide Section 300).

This change in policy (even though VA does not require it) will limit thousands of Veterans from refinancing their homes.  Look at what is happening in the market today.  Job loss is at an all time high, taxes are going up, inflation will be a huge factor.  Right now people need to save money more than ever.  I also find it interesting that the Federal Government which VA is a part of, is dumping so much money in the market to help with rates and stimulation, yet the biggest bank is instituting this which will keep our VETERANS WHO FOUGHT FOR THIS COUNTRY unable to refinance to better their situation.  Who now days has equity in their home?  I don’t.  Wells Fargo states that “in an effort to mitigate the risk of declining home values on VA IRRRL transactions”.  Give me a break.  What’s more important to a Veteran – equity in their home, or risk losing their home because of a financial situation change when a lower monthly payment is needed.

My advice is to all Veterans – write your congressman and contact the Dept of Veteran Affairs and let them know your feelings.  Hopefully if enough people respond the 100 pound gorilla (XXXXXX) will wake up and realize they are not doing anybody any favors.

To Contact your Congressman CLICK HERE

To Contact the VA via email CLICK HERE

To Call your VA office CLICK HERE

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