Deciphering the VA Lender’s Handbook Chapter 11 Part 7
So far in Chapter 11 we’ve talked mostly about the VA appraisal as it’s applied to new and existing construction-type homes. There’s a good chance, however, that you’re looking at a different option for your home. Perhaps you’re looking at a manufactured home, or looking at building your own home. You may be wanting to improve on your home, or the home you’re looking to buy might be located in a flood zone, coastal barrier area, or on a farm. If any of the above are the case, you’re in the right spot. We’ll talk about things you’ll see on the appraisal report and learn about the pitfalls that appraisers look for under specific conditions.
If you’re planning on building your own home, and are using a construction loan, you’ll find a lot of the information in Chapter 10 very helpful, but as far as the appraisal report, the only thing the Handbook mentions in this part is that the appraiser must include a certification in the report that reads as follows, “I hereby certify that the information contained in [specific identification of all construction exhibits (e.g., Smith Construction Plan Type A, 9 sheets, VA Form 26-1852, Description of Materials, plot plan by Jones, Inc.)] was used to arrive at the estimate of reasonable value noted in this report.”
Since most lenders are not currently offering VA construction loans, you likely won’t run into that situation, but it is very possible that you’re looking at a manufactured home. Manufactured homes that are classified as real estate have some special considerations when it comes to the appraisal. If the home is new and has not been delivered to the local dealer or lot on which it will be installed, the appraiser is not required to enter it. However, if the appraiser is not able to enter the home, he or she will be needing some documents to conduct the appraisal. The burden may fall on you to provide them.
- First, the appraiser needs the design and/or floor plans showing the room layout and exterior dimensions, as well as elevation plans.
- Second, the appraiser will need the specifications on all the standard items included such as flooring, heating, plumbing, electrical equipment, and appliances.
- Third, the appraiser will need documentation on any selected options or upgrades included in the sale.
- Lastly, the appraiser will need the foundation plan.
As you read the appraisal report, you might notice an oddity – the appraiser did not use other manufactured homes as the comparables. Usually, if you see this, the report should clearly state that no comparable manufactured homes on permanent foundations were available for use as comparables. In this case, the appraiser will use the most closely comparable conventional homes and adjust them accordingly.
Now, if you’re refinancing your home and hoping to get cash out to improve the home, the VA appraisal is going to have to do a cost-benefit analysis of sorts. Essentially, the appraiser will make an estimate of reasonable value both “as-is” (before the improvements) and “as repaired” (after the improvements). Also, for the purpose of the appraisal, improvements such as solar energy systems are evaluated based on the value they add to the home, not how much they cost to implement.
If you are using your VA loan to purchase a farm residence, then you’ll be pleased to know that the VA does not set a limit on the number of acres that your farm property may have. Please note, however, that the only reason you’re able to use a VA loan to purchase a farm is if it has a residence on it and you are planning on using the home as your primary place of occupancy. As the appraiser conducts the appraisal, he or she will not include livestock, crops, or farm equipment in the value consideration of the property. Additionally, improvements to the property such as barns, sheds, stables, etc. will only be valued in consideration to the their value for residential purposes. In other words, even though a stables might be quite valuable for the commercial operation of the farm, it will only contribute to the VA’s appraised value of the property inasmuch as it contributes to the residential value of the property. In the next article, we’ll talk about properties in flood zones, near coastal barrier areas, and near airports.