You just received a copy of the final report and the VA loan appraisal is too low. Appraisals can throw a wrench in your financing plans and wreak havoc with your lender.
A low appraisal may mean that a lender will require you to come up with some sort of down payment to help protect their interests and investment in your new home.
The appraisal may also reveal that there are some violations of the minimum property requirements that ensure the health and safety of veterans who purchase new homes.
Finding one major issue with these minimum standards could mean that you are in for some expensive repairs if the lender will even move forward with the financing at all.
Fortunately, you do have an option if your find your VA loan appraisal too low. You always have the option to ask for a Reconsideration of Value.
VA Loan Appraisal Too Low? Apply for a Reconsideration of Value (ROV)
The Reconsideration of Value gives prospective buyers and lenders another opportunity to correct a potential mistake on the part of the appraiser. They may feel that the report didn’t include comparable properties in the same price range.
Perhaps they noticed that there was a mathematical error that calculated the square footage incorrectly. The appraiser may not have been made aware of a recent update to the property that significantly boosted the home’s value.
A Reconsideration of Value is your opportunity to put the facts you uncover in front of the appraiser to see if they will make a different determination.
In order to request an ROV, you will need to start by contacting your lender in writing. Explain why you believe that the proper should be reconsidered, including comparable properties or the additional facts in the information.
Using the ROV to Appeal
Contacting your lender and involving them in the conversation is the first step toward reconciling your issue. Lenders typically have at least one person on staff known as their Staff Appraisal Review (SAR).
Their Staff Appraisal Reviewer will consider your letter and forward the information if they believe that your claims have substantial evidence to support them.
Sometimes, they will forward the information back to the appraiser who initially completed the job. Depending on the response they receive, it may be sent directly to the VA.
Doing as much homework as you can will weigh favorably for you. Send as much information as you can find that would support your desire for a higher appraisal. Compile a list of comparable properties that sell for roughly the same list price.
Show three properties like this that weren’t included in the original report.
Highlight and point out any errors that were written up in the original report. These steps make it clear exactly what you are hoping to accomplish with your ROV.
What to Do if the ROV Fails
Some homeowners request an ROV, but the appraisal comes back at the same low rate. You have a few options for what you can do with the property at this point. Unfortunately, the sale isn’t likely to move forward unless you select one of these three options.
Ask the buyer to lower the price.
If the property is genuinely overpriced based on comparable real estate in the area, you could always consider asking the buyer to lower the price to the appraised amount. This would save you a considerable amount of money and may even get you a fairer deal on the home of your dreams. Some buyers would begrudgingly lower the price of the house simply to salvage the sale and move on with the rest of their lives.
Use cash to make up the difference.
The seller may still refuse to lower the property price, but you aren’t quite willing to part with your dream of living there yet. You can still purchase the property but your lender is probably going to ask that you come up with cash to make up the difference between the appraised value and the sale price.
This helps the lender to protect their investment if you were to default on the loan.
Consider the position that the lender would be in if they moved forward on your loan without any money down. When a homeowner defaults on a mortgage that is greater than the house is worth, it’s a given that the bank is going to lose money if the house moves into foreclosure.
By covering the difference with cash up front, you are giving the lender some security.
Walk away.
Many prospective homebuyers love to use the VA home loan because of its advantageous no down payment option. If you didn’t plan to put down thousands of dollars toward a new home, paying the difference may not be a real option for your family.
At this point, it’s probably best to simply walk away from the property until you can find something that is better suited to your needs and budget.
What to Do if the Home Fails Minimum Property Requirements
There is another issue that the appraisal can bring to light that also presents a significant challenge for homebuyers. A home that fails to meet the minimum property requirements may need some additional attention before a lender is willing to move forward with the loan.
Because these requirements tend to deal with major issues that make the house safe, sanitary, and structurally sound, you may be looking at a major problem.
You will have three options regarding what to do about a home that doesn’t meet the requirements according to the appraiser.
Ask the seller to make the repairs.
The seller is technically in charge of the property until you sign on the dotted line at closing. It’s reasonable to first request that the seller make the necessary changes to the property on their own dime. After all, they may lose a sale altogether if the issues aren’t remedied.
Pay for the repair yourself.
This could be a potentially risky move, but it is also highly effective. A buyer does have the option to cover the cost of the repair himself.
This can help you to ensure that the repairs get done and prevent you from losing your financing. However, not all homeowners are equipped to cover the cost of these repairs out of pocket right before closing on a home.
Walk away.
Much like our last example of a property that failed the Reconsideration of Value, you still have the option to walk away. This may not be a bad idea if you uncovered some major issues that compromise the structural integrity or safety of the home. After all, more repairs may be on the way after this set.
You’ll have to make a wise decision regarding what you want to do on this property and how much you are really willing to invest in rehabilitating it to meet the minimum property requirements.
Conclusion
Having a VA appraisal that’s too low can be a significant problem during your financing process. Fortunately, the VA has worked out a system that allows homeowners to appeal a decision with a Reconsideration of Value (ROV).
Following these steps, you may be able to have the appraised value of the home increased. On the other hand, you may also have to make some important decisions about what comes next in your dream of homeownership.
If you have a VA appraisal that is too low, be sure to contact your lender today to see if they can help you to file for a Reconsideration of Value.
Frequently Asked Questions
Are VA appraisals typically too low?
The VA appraisals will vary based on your objective third-party appraiser, the criteria set forth by your lender, and the condition of the prospective property.
