Deciphering the VA Lender’s Handbook Chapter 10 Part 4
In the last article, we began talking about the types of property that are eligible for the VA appraisal. It is best to read that article (Part 1) before reading this article. In that article we cover the various types of housing that are eligible for the VA appraisal, while in this article we’re going to focus more on housing in specific circumstances that make it either eligible or ineligible to be appraised. First, we’ll talk about properties that are going to be altered, improved, or repaired. This can happen in a refinance situation. Second, we’re going to talk about appraisals that happen for a property that is already securing a VA loan. This usually means a refinance.
So, the VA can approve and guaranty loans for the purpose of altering, improving, or repairing a property that is already owned and occupied by the veteran. The appraisal can happen at one of two times: before the work has been started on the home, and after the work has been completed. Generally, if the appraisal takes place before the work (which is the best time to do it if you can), the appraiser will make a determination based off of the construction exhibits and the plans for the alterations, improvements, or repairs. All work that is done must be inspected to the extent that the VA determines, and this determination is done on a case-by-case basis. If the appraisal happens after the work is done, it is conducted much like a normal appraisal. If the work is completed before the appraisal, usually no construction exhibits are required as the appraiser can see the actual changes made quite clearly.
The Handbook specifies three reasons why a property that is currently securing a VA loan might be eligible for an appraisal:
- The property is being refinanced, a partial release of security, or foreclosure on the home. If it is a cash-out refinance, an appraisal is required, as the value of the home must be determined in order for the lender to know how much equity the borrower has in the home. If it is just an interest rate reduction refinance, then an appraisal is not required.
- However, if the new loan balance will exceed the original loan by 5% or more, the lender may wish to request an appraisal, and is allowed to do so. In the case of a partial release of security, an appraisal will be required unless there is sufficient information already available for the VA to determine the reasonable value of the property and the value of the security remaining.
- The last reason a property currently securing a VA loan might need a refinance is in a case of foreclosure.
Now, as a borrower, if an appraisal is needed, in this case, you won’t have anything to do with it because you will no longer be in the home. In this case, the lender won’t usually request an appraisal until there is an interested buyer of the home. The lender does, however, have to make sure that the appraisal takes place no later than 30 days prior to the estimated sale date of the home. The lender is responsible for helping the appraiser get access to the interior of the home, so you shouldn’t need to be involved in any way.
Obviously, in the event of a foreclosure, the last thing on your mind is going to be when the lender gets an appraisal on the home. Foreclosure is an awful thing to experience, and so every time we talk about foreclosure, we try to throw in some tips to help you avoid it even when your finances are in trouble. There are a lot of things you can do to help bail yourself out if you’ve lost your job, had your hours or salary cut, or had an unexpected emergency expense. Here are some things you should do:
- get a job ASAP: this may seem obvious, but what we mean is any job. Working minimum wage at McDonald’s is better than nothing, and can be what makes the difference while you’re between jobs in your industry.
- Keep your lender informed: when something financially bad happens, after family, the first person who should know about it is your lender. If you are talking to your lender two months before you will miss a payment, he or she has a lot more things they can do for you than if they don’t know you’re in trouble until you’ve missed a payment.
- Be smart with money now: keep your credit card debt under control and pay more than the minimum on your mortgage. One of the ways to avoid foreclosure is to consolidate your debt into your mortgage. Your interest rate on your mortgage is almost certainly lower than your interest rate on your credit cards. If you’re ahead of the amortization schedule, your lender can play with the monthly payment until the amortization schedule has caught back up.