Deciphering the VA Lender’s Handbook Chapter 14 Part 7
So far in Chapter 14 we’ve talked about the purpose and scope of VA construction inspections, the difference between the inspections and the VA appraisal, the four stages of VA construction inspections, cases where a special or repeat inspection might take place, and what to do when an inspection was missed. In this article, we’re going to go over the scenarios and circumstances where it is acceptable for the builder or borrower to use inspections conducted by the local building authority in lieu of the VA building inspections.
The first thing to remember is that the third and fourth inspections can never be replaced by an inspection conducted by a local building authority; only the first and second inspections can be waived in favor of the building authority’s inspections. This can only happen when two requirements are met: First, the property must be located in an area where the procedures, practices, and track record of the local building authority is acceptable to the Department of Housing and Urban Development (HUD) for loan insurance purposes, and second, the third stage VA compliance inspection is performed by a VA fee inspector assigned by the VA office of jurisdiction. The VA relies on HUD for their evaluation of local building authorities because that’s their area of expertise.
As usual, there are exceptions to these rules. The first thing to keep in mind is that allowing the first and second inspections to be done by the local building authority has no effect on the required items of compliance and is really only advantageous because the building authority is going to inspect anyway and it’s nice to only have to deal with 3 or 4 inspections instead of 6 or 7 between the VA and the local building authority. Also, if this is a case of a Specially Adapted Housing grant, the VA must conduct all of its inspections using an assigned VA fee inspector so a local building authority inspection will not count. The VA has special requirements for improvements being made with their SAH grant, and they have found that it’s best to have their own inspectors conduct the inspection.
If you are able to use the local building authority’s inspections in lieu of the VA’s first and second inspections, there’s a little bit of paperwork that needs to be done. Most of this will be done by your lender, but you may need to provide information or input to complete some of it. The lender is required to keep a properly-executed clear third stage compliance inspection report conducted by the official VA inspector, and a copy of the occupancy permit (or something else that provides the same information) that is issued by the local building authority that states the construction was completed in compliance with all building codes.
The VA’s main concerns are that the veteran borrower is getting a suitable home that will last them as long as they need it, or, in the case of a major improvement or alteration, that the improvement truly improves the home and is built properly so as to last as long as the veteran will need it. They want to make sure that the veteran’s investment is protected, and they do everything in their power to make sure that their choice to use the VA loan benefits never comes back to bite them. This is why they require four total inspections, and it’s why they require the builder to provide some sort of insurance on the construction, and it’s why they have a long list of Minimum Property Requirements that a house must meet in order to be purchased with a VA loan.
That is also why the VA reserves the right to discontinue relying on a particular building authority if they find excessive construction deficiencies or construction complaints in the area that the building authority presides over. The VA may refuse to rely on a building authority even if HUD still chooses to. If a building authority is not conducting inspections that reasonably assure the VA of compliance with their standards, they will not rely on that building authority to conduct any more inspections.