Deciphering the VA Lender’s Handbook Chapter 10 Part 3
A property being eligible for a VA loan and being eligible for a VA appraisal are two different things though they are closely related. The VA appraisal is what determines whether a property will be eligible for a VA loan. There are some types of purchases that are not eligible for a VA guaranty irrespective of the appraisal, such as mobile homes or RVs, but even eligible property types have to pass the VA appraisal test. This article is going to focus on whether properties are eligible for the appraisal, and we will not discuss the property requirements for a home to be eligible for the VA guaranty. It is ultimately the lender’s responsibility to determine whether the property is eligible for a VA appraisal, and if the lender makes a claim on a home that was not eligible for the appraisal, the VA may deny or reduce the payment on the claim.
Any existing construction is eligible for the appraisal. In other words, a home that has been previously occupied or has had all the onsite and offsite improvements completed for at least a year is eligible. Newly constructed properties are eligible for an appraisal if they are covered by a one-year VA builder’s warranty, are enrolled in a HUD-accepted ten-year insured protection plan, or built by the veteran, as the general contractor, for his/her own occupancy. Exceptions to this can be made if a veteran is purchasing a new home from a builder who is “…not more than occasionally involved with VA financing…” and does not offer a VA builder’s warranty or at ten-year insured protection plan. You may wonder how new constructions are appraised. It all depends on timing.
Above we talked about homes that have recently been completed and have not had a previous occupant. Now we’ll talk about proposed construction loans or properties still under construction. These properties are eligible for the VA guaranty if the appraisal is based on the proposed construction exhibits, and the property is inspected by either the VA or HUD during construction. In these cases, since it’s not practical for the VA to wait until the home is finished to appraise it (imagine having the VA refuse to guarantee your loan after you’ve built a house for it), the VA makes sure that the plans are up to snuff, then checks up during the construction process to make sure that the work is sufficient quality.
Manufactured homes that are classified as real estate are eligible for VA appraisal under certain conditions. The first is that the home is both classified and taxed as real property. Second, that the home is properly affixed to a permanent foundation. Third, the property must substantially conform with the VA’s minimum property requirements, and it must also conform with applicable building code and zoning requirements for real estate. In other words, aside from the way the home was made, there must be no practical difference between a manufactured home and a normal property. However, other manufactured homes can be eligible for the appraisal if they (shocker) meet certain conditions.
These types of manufactured homes are often referred to as ‘modular homes’, and are eligible for the appraisal, as long as they are covered by a HUD structural engineering bulletin, or meet state building standards and have the state’s approval certification. Modular homes are delivered to the building site in sections but are not attached or affixed to a chassis supported by wheels. This is different from mobile homes. Mobile homes are generally not eligible for the VA appraisal because they are attached to a chassis with wheels. The nature of mobile homes makes it nearly impossible for them to achieve the minimum property requirements that the VA has for properties being financed with a VA loan. Those minimum property requirements establish a certain quality of life that is often not obtained by a mobile home.
In the next article we’ll talk about properties that are going to be altered, improved, or repaired, properties that are already securing a VA loan (for instance: refinancing), and we’ll cover the types of properties that are not eligible for a VA appraisal.