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.
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.