The VA home loan benefit is one of the most popular military benefits; first-time home buyers who are not military members or otherwise eligible to apply for a VA mortgage have a strong envy of those who are able to get a VA mortgage because of the zero-down payment option in addition to more flexible credit guidelines than for conventional mortgages, and no private mortgage insurance requirement.
But VA borrowers can make the same mistakes as other home buyers and one mistake in particular can become a major problem, sometimes within the earliest days of owning the home. Smart house hunters know to avoid this pitfall, and inexperienced home buyers learn too, but sometimes the hard way.
What is this classic mistake and how can a VA borrower avoid it? The key is to understand how the home loan process works and what consumers need to do to protect themselves from hidden problems lurking in a home becoming a major money pit.
The Problem: Making A Fully Informed Decision To Buy A Piece Of Real Estate
How do you, the borrower, know the true condition of the home? Unless you have experience with construction, and home construction in particular, how do you really know the true condition of the roof, the foundation, the electrical systems in the home, and other areas? The fact is, many borrowers don’t know the first thing about leaky roofs, shifting foundations, mold, HVAC systems that aren’t big enough to service the home properly, or other potential problems.
To get an idea of the true condition of the home, you need an expert to look at the property and identify potential problem areas. We’ll get to that in a moment, but first it’s important to understand the VA mortgage loan process and one important area in particular-the VA appraisal.
The VA Home Loan Process
When you find a home you wish to purchase with your VA home loan benefits as an active duty military member, Reservist, or as someone who is a military retiree or separated from service, you make an offer to the seller, work with your lender on the mortgage loan, and await the results of the mandatory VA appraisal.
The VA appraisal is a process the lender initiates; the appraisal is a tool for the lender to determine the fair market value of the home and to insure the property meets minimum VA loan standards.
The word “minimum” is the key portion of that sentence.
The VA Appraisal: A Tool For The Lender And Not The Borrower
The appraisal process is designed for the LENDER. It is not designed for the borrower. The VA appraisal does NOT mean your home has been inspected for all potential issues.
This confuses some borrowers, especially first-time home buyers, because people in the mortgage industry including your lender often use the word “inspection” when they really mean “appraisal”.
But an APPRAISAL is NOT an inspection and DOES NOT go into enough detail to give a borrower all the information they need to make an informed choice. The appraisal is, compared to the home inspection, a comparatively faster process and does not require the appraiser to be an expert in specific areas of the home. The appraiser is not required to step onto the roof, and does not have to know how HVAC systems, plumbing, or other aspects of the home operate.
The Fatal Mistake Home Buyers Make That You Should Take Pains To Avoid At All Costs
Borrowers hear the lender, real estate agents, and other people in the mortgage industry referring to the appraisal process as an inspection, and assume that when the home “passes” the appraisal, that their home has been INSPECTED.
It has not.
If you or your co-borrower(s) did not PERSONALLY arrange for a home inspection, you have not had one. And if you have NOT had a home inspection, you should NOT commit to the purchase of the property.
Buying a home without getting a home inspection is like buying a car you did not test-drive. It is a very common mistake, but it’s one that can cost you thousands of dollars later down the line.
For Your Protection, Get A Home Inspection
The home inspection, unlike the VA appraisal, is optional. The appraisal is mandatory and ordered by the lender. The inspection is the borrower’s responsibility and as stated previously, if you did not order and pay for a home inspection, you did not have a home inspection.
What’s more, mortgage lending sites have comment sections full of complaints from borrowers who purchased a home thinking that their appraisal WAS an inspection, and asking for advice and wondering why their new home has a leaking roof, a flooded basement, poor performance in the heating and air conditioning systems, mold, or other issues that the appraisal is not necessarily going to catch.
If you fail to get a home inspection, there is no recourse for you in such cases-the VA will not be able to get you a refund, cancel the loan, etc. You are essentially stuck with the home and its problems that should have been spotted by the home inspection.
The Department of Housing and Urban Development official site has a page dedicated to this problem; they issue a publication titled For Your Protection, Get A Home Inspection which includes the following advice:
A home inspection gives the buyer more detailed information than an appraisal–information you need to make a wise decision. In a home inspection, a qualified inspector takes an in-depth, unbiased look at your potential new home, which is designed to do several things:
- Evaluate the physical condition: structure, construction,and mechanical systems
- Identify items that need to be repaired or replaced
- Estimate the remaining useful life of the major systems,equipment, structure, and finishes
Appraisals Are Ordered By The Lender, Inspections Are Ordered By The Borrower
Borrowers often balk at spending the money to pay for a home inspection. The borrower-scheduled inspection can cost between $300 and $500 depending on whether mold or radon testing is required. That price tag, on top of other mortgage loan fees and expenses, can make a borrower feel inclined to skip the inspection and save the money.
But those who choose the home inspection pay hundreds now to save thousands later. If you purchase a home with serious roof issues that cannot be detected by standing on the sidewalk and viewing the roof (the way an appraiser might), your final price tag for those repairs could go into the thousands, not hundreds.
Yes, we have repeated the home inspection mantra quite a bit in this article, but it’s an extremely important part of the house hunting process. Who purchases a car without test-driving it? Buying a home without having it inspected is the exact same thing.
One Final Red Flag To Watch Out For
Some house hunters may be offered a cash incentive, discount, or price break if they agree to buy the home without an inspection. One finance blog reports that a Chicago house hunter was offered as much as $5 thousand off the home if the buyer agreed to purchase without the inspection.
This is a major red flag and a VA borrower should run, not walk, away from such an offer as it often indicates serious problems with the property. In the specific case of the Chicago buyer, the home inspection was ordered anyway and found severe problems including rotting support beams, a sinking foundation, and the dangerous removal of a load-bearing wall.
That is just one example of what can happen. It’s a bad idea to tempt the fates and purchase a house without having it inspected. Relying on the appraisal alone is a recipe for disaster whether you are using a VA home loan or any other type of mortgage.
Joe Wallace is a 13-year veteran of the United States Air Force and a former reporter for Air Force Television News
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