The 2021 housing market has seen a lot of competition amongst buyers to get contracts accepted by home sellers and as a result of that many VA loans being pushed to the side in favor of conventional loans. This is mainly due to the misconception that the VA loan isn’t as strong as a conventional loan however recent data from closed loans in 2020 proves otherwise. Other sellers worry about their homes appraising with a VA loan but that shouldn’t be the case either due to built in processes to help obtain market value mentioned below.
How strong is a VA loan vs a Conventional loan?
Recent mortgage origination data from 2020 has the VA loan closing percentage, from origination (accepted contract) to closing, at 4% higher than conventional loans. This fact is driven by data and analytics that prove how strong the VA home loan is compared to the conventional loan which has been perceived as stronger regarding financing, however, the data shows that this is not the case.
What about the appraisal?
If the appraised value of the home is a concern, the VA home loan benefit has 2 distinct steps that can be taken to ensure proper market value is delivered on the appraisal.
#1 – The VA Tidewater initiative allows the borrower to combat a low valuation before it’s even official. The appraiser can’t discuss details of the appraisal except to explain that the recent comparable home sales being used don’t support the sale price. At that point, the lender has two days to provide the appraiser with additional comparable home sales that support the purchase price which typically come from the real estate agents in the transaction. The appraiser will then take these additional comps and issue the final appraisal report. If the Tidewater process doesn’t lead to a sufficient increase in value, the appraiser is required to provide a written explanation as to why. If the property’s appraised value is still low and official, buyers can seek a more formal appeal through what’s known as a Reconsideration of Value.
#2 – The ROV – Reconsideration of Value. The VA recognizes that appraisal mistakes can happen. Value-adding features can be overlooked or suitable comps may have been left out. Appraisers might have made a mistake calculating square footage or used a comp in the original appraisal that isn’t truly comparable (maybe recent renovations weren’t known or factored into the equation). What is needed in this case are comps not used in the initial appraisal, up to three recent comparable home sales that weren’t included in the appraisal and that closed prior to the appraisal report’s effective date and a letter from the borrower. This is a written request for the Reconsideration of Value along with the borrower’s thoughts on why the appraised value should be increased and what they think the value should be. At this point a Staff Appraisal Reviewer (SAR) will review the reconsideration request and, if it has merit, send the documentation to the appraiser or to the appropriate VA Regional Loan Center.
These two factors are built into every VA loan to ensure that an accurate market value is obtained. If you have any other questions, please feel free to contact me via the information below.