Deciphering the VA Lender’s Handbook Chapter 10 Part 8
The last article was about getting a VA appraisal on new construction. New construction is not the same thing as proposed construction though people often mix them up. Do not confuse new construction with “existing construction” which means that the property has already had at least one occupant before you purchase it, or “proposed construction” which is a loan for the purpose of building a new home. Appraisals for proposed construction usually involve a builder more than a borrower, but if a borrower is wanting to get a loan to build a home, this information will also apply. The first thing to remember is that there are two types of proposed construction appraisals: individual, and master.
If you’re a borrower, you’ll almost certainly be getting an individual appraisal. Individual just means that only the appraisal on the home applies to only that home. This is opposed to a master appraisal, which is conducted for each house design and can apply to 5 or more homes that are built according to the same design. Master appraisals save time and money for builders and VA appraisers. When a VA appraiser writes up the Notice of Value from a master appraisal, all of the properties that it covers will be included on the same VA Master Certificate of Reasonable Value. What makes appraising proposed construction (or homes under construction) is that the appraiser can’t see the finished product the way he or she can on a normal appraisal.
To get around this limitation, the VA requires construction exhibits to be provided along with the request to appraise the construction, whether it is an individual appraisal or a master appraisal. If you’re a borrower having a house built, your builder should be able to take care of this though you may need to make sure he or she is aware of the requirement. If you are literally building your own house, chances are you have the skills and knowledge necessary to provide the construction exhibits, or you can hire someone to do it for you. In addition to appraising the construction exhibits, the VA also requires that the property be inspected at some point during the construction by either the VA or HUD.
The under-construction inspection is to make sure of a few different things. First, that the property is really being built according to construction exhibits provided to the VA, and that the property is meeting the VA’s Minimum Property Requirements for proposed construction. In some cases, a final inspection after completion of the property may be required. If the property is to be covered by a ten-year insured protection plan, or if the VA relied on local building authority inspections to be in lieu of official VA appraisals, then a final inspection will be required. The VA doesn’t mess around when it comes to taking care of veterans.
In order to pass the VA appraisal and be deemed fit for a veteran to purchase with a VA loan, the property must have a one-year VA builder’s warranty on it. This is only true for properties processed as proposed or under construction. If there were no 1st and 2nd-stage inspections done, and only a final one was conducted, the VA will also required a ten-year insured protection plan on the home. If the 1st and 2nd inspections were conducted by the local building authority or the VA, this requirement is waived. The Handbook also provides this helpful chart to show what types of warranties are required and when:
|When the property is appraised as…||…then…|
|existing construction||no warranty is required|
|new construction||either:1-year builder’s warranty is required or
a 10-year insured protection plan is required.
|proposed or under construction with a full complement of VA inspections||only a 1-year builder’s warranty is required|
|proposed or under construction (with only a final VA inspection and local inspections are accepted in lieu of VA first and second stage inspections per Section 14.03)||only a 1-year builder’s warranty is required.|
|proposed or under construction (with only a final VA inspection and local inspections are not accepted in lieu of VA first and second stage inspections per Section 14.03)||both a 1-year builder’s warranty, anda 10-year insured protection plan are required.|