How to Navigate VA Home Appraisal Challenges in California

Many military members and veterans in California use the VA loan program when buying a house. And it’s easy to understand why.

It’s the only mortgage program available that allows buyers to finance up to 100% of the purchase price, without paying mortgage insurance. And that’s a big pretty big deal in an expensive state like California.

If you use a VA loan to buy a house in California, the property will have to be appraised by an approved home appraiser. This process is used to determine the property’s value and to ensure that it meets the Minimum Property Requirements (MPRs) for a VA loan.

Much of the time, the VA property appraisal process goes smoothly with no major issues that might delay closing. But for some home buyers in California, the appraisal can present challenges that must be addressed in order for the loan to be approved.

In this article, we will explore two common VA home appraisal problems and how you can navigate them to reach the finish line.

Understanding the VA Property Appraisal

In California, a property appraisal is required for nearly all VA home loans. It’s an assessment of the property’s market value and overall condition, as determined by an independent appraiser.

The primary purpose of the VA appraisal is to establish the “fair market value” of the property being purchased. This is the amount a buyer might be willing to pay for the property, based on local market conditions and recent sales. The Department of Veterans Affairs uses the appraised value to determine how much the VA will guarantee on the loan.

The appraiser will also examine the home to make sure it meets the Minimum Property Requirements (MPRs) mentioned earlier. These requirements are established by the Department of Veterans Affairs. They’re designed to prevent a buyer from purchasing a house that has serious structural or safety issues.

With that definition out of the way, let’s talk about two potential problems buyers might experience during the VA loan property appraisal process in California — and how to handle them.

Challenge 1: Appraisal Comes in Low

One of the most significant challenges a home buyer can face is when the appraised value of the property falls short of the agreed-upon purchase price. This situation can lead to problems because the VA loan amount typically cannot exceed the appraised value. So what can you do if the appraisal comes in lower than expected?

Here are some options to consider:

Ask the seller to lower the price. If the appraisal shows that the home is worth less than the purchase price, you might be able to negotiate with the seller to lower the sales price. Most sellers want to close the deal and may be open to a modest price reduction to keep a committed buyer.

Seek a Reconsideration of Value. Sometimes, appraisal values can be inaccurate or fail to consider essential factors. In such cases, buyers can request a Reconsideration of Value. This involves providing additional recent comparable home sales that were not used in the original appraisal, which may lead to a revised appraisal.

Make up the difference in cash. While not the most desirable option, you can choose to pay the difference between the appraised value and the loan value in cash. But before pursuing this option, consider whether overpaying for the property is a wise investment.

Walk away from the deal. If the appraisal comes in significantly below the purchase price and negotiations aren’t successful, VA buyers have the option to walk away from the contract with their earnest money intact, thanks to the VA Amendment to Contract.

Challenge 2: Repairs Are Necessary to Meet MPRs

Sometimes, the appraisal report identifies repairs that need to be completed before the loan can proceed. This can be concerning for home buyers, especially first-time buyers who have never been through the process before. So let’s talk about what you can do if the VA appraisal determines that repairs are needed.

Here are some options to consider:

• Ask the seller to complete repairs. The first step is to ask the seller to undertake the necessary repairs. While sellers are not obligated to do so, some may be willing to invest in repairs to facilitate the sale.
• Walk away from the home purchase. In some cases, the VA appraisal may reveal severe concerns about the property, such as significant structural or plumbing issues. In these situations, it might be in your best interest to walk away from the deal. Contract contingencies related to the property’s condition can help protect your earnest money.

The California VA appraisal process plays a crucial role in the home-buying journey for those using VA loans. If you encounter appraisal challenges, communicate with your loan officer and real estate agent to find a solution. They can provide valuable guidance and help you explore the best options available.

Have questions? Bridgepoint Funding specializes in VA loans for California military members and veterans. We know this program “inside and out” and would be happy to answer any questions you have.