Deciphering the VA Lender’s Handbook Chapter 14 Part 1
Chapter 14 of the VA Lender’s Handbook is dedicated to talking about construction inspections. We went over some of this information in our articles on Chapter 12, but Chapter 14 is the bible of VA construction inspections. This is great information if you are getting a VA construction loan, but it’s also great information if you are taking the more-likely route of refinancing your home to get cash-out in order to pay for an addition to your home. Either way, VA policies and procedures regarding construction inspections affect you, and you should know what to expect and how to handle them from your end. Not all home additions require construction inspections, and we’ll cover the differences between the ones that do and the ones that do not.
First, the purpose per the Handbook: “The purpose of VA inspections during construction is to ensure that all onsite and offsite improvements have been acceptably completed according to the construction exhibits on which the VA value estimate is based, and VA Minimum Property Requirements (MPRs) per Chapter 12.” In other words, the inspections are in place to make sure that the construction was done properly and accurately based on the construction exhibits that the VA evaluated (if the construction was for an addition, there will still be construction exhibits required of some sort required). If you are looking for more information on what the VA requires for construction exhibits, check out our articles on Chapter 10 of the Handbook, which covers VA requirements for construction exhibits in depth.
Construction inspections can have a profound effect on your VA loan depending on the results. If the final inspection report comes back “clear”, then the lender can close the loan. If, however, the actual construction deviated from the construction exhibits that the appraiser used to determine the value of the home, the value may need to be adjusted accordingly. Also, if the inspection determines that the home does not meet the VA MPRs, then the VA will not guarantee a loan for the home. The type of inspections required depends on what the property is being appraised as, and the Handbook provides a handy table that goes over that information quite succinctly:
|When the property is appraised as…||Then…|
|proposed or under construction with no insured ten-year protection plan||
|proposed or under construction with an insured ten year protection plan||Only a final (third stage) inspection is required.|
|existing construction with major
||VA will determine on a case-by-case basis
As you can see from the table, if the builder of the home is offering a ten-year insurance plan, then the inspections will be limited to the final inspection. In cases where the home is an existing construction and is getting major alterations made to it, the VA will determine what inspections are required.
You may be wondering if there are special requirements for Specially Adapted Housing. Specially Adapted Housing is housing that has unique features installed that make it more suitable to a person with a disability. The VA does not have any special requirements for SAH, other than encouraging inspectors to pay special attention to making sure that the adaptive features are, in fact, suitable. From the Handbook, “The compliance inspection procedures applicable in Specially Adapted Housing cases are identical with those for other types of cases, except that special emphasis should be given to the adaptive features.” If you are making plans to make a major improvement to your home, or you are planning on trying to get a construction loan, you may want to specifically ask your lender what inspections are going to be required. We will be covering a lot more details on VA construction inspections in the rest of the articles on this chapter.