VA loans are subject to a lot of confusion and misconceptions. Many of them surround the VA appraisal, which, unfortunately, does a great job at creating confusion. Most VA-approved lenders, however, are very good at explaining the VA appraisal, and often a borrower simply needs to ask in order to get their questions answered. One of the things that borrowers want to know in regards to the VA appraisal or VA loans in general, is whether there is an age limit on the homes they are allowed to buy. Does the home have to be built after a certain year in order for the VA to be willing to guarantee the loan? If so, what is that year? What are the VA standards in this area and are there exceptions to those standards?
The short answer to whether the VA has established an age limit on homes is no. As with every short answer, however, there is a ‘but’, followed by a much longer answer. Nowhere in the VA lender’s guide or rule book does it specifically mention the age of the home. Regardless of age, however, the home does have to meet the VA’s minimum property requirements, as well as all state and local building codes, which many older homes may not. The requirement most directly associated with age, however, is the property’s “remaining economic life”. While a home’s remaining economic life declines over time (alas the nature of life), it does not necessarily mean that an old home has little remaining economic life, so even with this requirement, there is no real age limit that can
be put on a home. A home built 100 years ago that was built well and properly maintained and updated as time went on can still have enough remaining economic life to be approved for a VA loan.
The rules for remaining economic life, at least for a home to be approved by the VA, is very utilitarian in nature. The home must have an estimated economic life that is at least as long as the terms of the mortgage (so 15 or 30 years). Quick definition on economic life for those unfamiliar with the term: how long the home is considered ‘salable’. In other words, when the home is no longer salable on the real estate market, its economic life is considered over. Additionally, the estimate on the remaining economic life has to be supported and not the result of a shrug of the shoulders and “it looks fine to me”. Directly from VA Pamphlet 26-7: “For VA Loan Guaranty purposes, the remaining economic life of the security must be at least as long as the loan repayment term. A short remaining economic life estimate must be supportable and not arbitrarily established. This is to avoid depriving veterans of the home of their choice in an area where they can afford to live.”
Estimating the remaining economic life is the job of – you guessed it – the VA appraiser. The appraiser looks at a number of variables, including the relationship between the property and the area it is in (is this a drug war zone?). The appraiser also looks at other homes in the area in direct comparison to the one being appraised, the build of the home from a functionality perspective, and the workmanship of the home, as well as how well it’s been maintained and whether it’s been kept in good repair. As mentioned above, the actual age of the home can certainly be a factor; in fact, it can be a defining factor if over the age of the home it has not been taken good care of, but there is nothing specifically that prohibits a home from being a certain age. Directly from Pamphlet 26-7:
“In estimating remaining economic life, the appraiser must consider
- the relationship between the property and the economic stability of the block, neighborhood, and community
- comparisons with homes in the same or similar areas
- the need for a home of the particular type being appraised
- the architectural design, style, and utility from a functional point of view
- the workmanship and durability of the construction, its physical condition and probable cost of maintenance and/or repair
- the extent to which other homes in the area are kept in repair, and in areas where rehabilitation and code enforcement are operating or under consideration, their expected results in improving the neighborhood for residential use.”