Deciphering the VA Lender’s Handbook Chapter 12 Part 9
In the last article, we covered the VA’s requirements for individual water supply and sewage disposal systems. Individual systems are where the water is acquired and the sewage disposed of independently from the local community. Community systems are far more common and are when the property just plugs into the existing water and sewage system, which takes care of making sure that water reaches the property and that sewage leaves it. As expected, the VA has requirements that the community water supply and sewage disposal systems need to meet in order for the home being purchased to be eligible for the VA guarantee.
The main thing that the VA is concerned with is that the community systems in place will be able to provide sufficient service relatively constantly (barring some sort of emergency). Per the Handbook, “VA must be satisfied that the type of system and organization will provide adequate, continuous service at reasonable rates.” The water supply must provide enough water to meet the needs of the property being appraised, and the quality of the water must also be approved by local or state health officials. The sewage system must also be large enough to meet the needs of the property, and it needs to be operated and maintained well enough to prevent “…it from becoming obnoxious or a menace to public health.”
Depending on the type of construction that is being appraised, the VA may require different documentation. For either existing or new construction (either way, the house is built and ready for occupancy before you start the buying process), the VA just needs to see evidence of approval of the facilities by the local or State public utility and health authorities. If the property is either proposed or under construction, documentation is required that provides the following:
- evidence of the financial stability and technical experience of the corporation, firm, or organization operating the facilities
- evidence of approval of the facilities by the appropriate State or local public utility and health authorities, and
- rates for the water supply and/or sewage disposal systems (to ensure that they are not greater than the charges for like services to properties similarly situated).
In other words, for houses that are either proposed construction (not started yet) or under construction (started, but not finished) the VA wants to make sure that the community facilities the property will be relying on are operated by competent bodies and have been approved by the local or State health authorities. There are many areas where the water supply and sewage systems are provided by private institutions, which is why the VA has the requirements they have for these systems. Additionally, in cases of proposed or under construction properties, the builder can be part of the same company as the water suppliers, or have a contract with the supplier. In these cases, the builder may try to recoup the cost of installing the system on the property in the sale price of the home and through the service rate charged for the water and sewage. The VA does not allow this. If the builder is recouping their costs by having the cost of installation included in the VA’s valuation of the property, they are not permitted to recoup the costs a second time through the service rate, and vice versa.
To the average borrower, most of this information is not something you necessarily need to know. However, if you do know, you have the ability to quality-check all the houses you are considering buying. You really should think to ask the seller of the home how the utilities – including the water – are provided, and if you are building a home with your VA loan or working to buy a home that’s currently under construction, finding out where the home will get its water supply and sewage disposal services is a really good step to finding out if it’s going to pass the VA appraisal. In the next article, we’re going to talk about when a trust deed may be required. A trust deed affects the borrower and is something you should be aware of and understand.