VA Loan Protections
When you’re applying for a VA-guaranteed loan, it’s important to be aware of two key factors related to the property you’re purchasing: the VA protection clause and the VA appraisal.
VA “PROTECTION CLAUSE”
The VA protection clause is a critical provision that must be included in the sales contract for all VA-guaranteed loans. It gives you the right to back out of a home purchase if the Notice of Value (NOV) appraisal is lower than the sales contract price. Your lender is responsible for ensuring that the protection clause is included in the sales contract before you close.
VA APPRAISALS
VA appraisals are an essential component of the home buying process, but they are not the same as home inspections. It’s important to have both, even if you’re purchasing a brand-new property. The VA protects veterans by ensuring that they purchase safe, sanitary, and structurally sound properties. After the VA appraisal is complete, you’ll receive a Notice of Value (NOV) stating the property’s estimated value and any repairs needed to meet the VA’s minimum property requirements. By staying informed about the protection clause and VA appraisals, you can ensure that you’re making a sound investment in a home that meets your needs and budget.
WHAT IF THE APPRAISAL COMES IN BELOW SALES PRICE?
TIDEWATER PROCESS
During the appraisal process, fee appraisers are required to notify the requester before completing the appraisal when it appears the estimated value is lower than sale price. This provides an opportunity for the requestor to send additional data to support the sale prices.
RECONSIDERATION OF VALUE (ROV)
After the NOV has been issued, if the price remains unchanged the Veteran may request an ROV. The Staff Appraisal Review (SAR) will research market data and provide a recommendation. This is a second opportunity to provide additional market data.
ESCAPE CLAUSE / CONTINGENCY
You have the right to not purchase a home when the appraisal’s Notice of Value (NOV) is below sales contract price. You should also have other contingencies such as the satisfactory home inspection contingency. Your vetted Real Estate agent can advise.
RENEGOTIATION / CASH TO CLOSING
The seller may be willing to consider reducing the sale price to the VA appraised value or offer seller concessions. If the seller is unwilling to negotiate a reduced price, you have the option to pay the difference in value in cash at closing.
* As a veteran, you can take advantage of several unique benefits when using VA loans. One of these is the built-in value reconsideration option, which allows you to challenge the appraised value of the property and potentially get a better deal. To make the most of this option, it’s important to work with a knowledgeable professional who can guide you through the VA loan process and help you prepare.
* For new construction homes in newly developed areas, you can request a “cost approach” appraisal. This method can help estimate the value of your home based on the actual cost of construction, rather than relying solely on comparable properties in the area. This option is particularly useful when there are no other similar properties available for comparison. By leveraging this option, you can ensure that you’re getting the best possible value for your investment.
Property Inspections
Home inspections are not required by the VA, but may be required by a lender. A home inspection is conducted by a state-licensed home inspector that observes and provides a report on major home systems and components of the property like the heating and cooling systems, plumbing, electrical and structural components. The inspector will provide the buyer with a list of items of concern. The repair costs can be negotiated between the seller and the buyer. Your lender and real estate agent will be able to best advise on the entire process to get you to a successful closing.
