One of the steps involved with buying a home with a VA loan is submitting an offer letter and signing a contract. Your contract will list all the details of your agreement including the sale price, what’s included in the purchase, and other important information. Additionally, it will also include a section that discusses something called an appraisal contingency.
If you’re a first-time home buyer, you may be wondering what an appraisal contingency is and how it works. Below, we’ve discussed the matter in detail.
What Are VA Appraisal Contingencies?
VA appraisal contingencies are put into place to protect buyers. Essentially, this is a clause that states that the buyer’s offer is only good if the sale price is equivalent to the fair market value. A VA appraiser must confirm that the home is worth the amount it’s being sold for.
If the home ends up being worth less than what the borrower offered to pay, the borrower is not obligated to move forward with the purchase. In other words, if the appraisal comes in low, you’re not legally required to buy the home; you can back out of the contract.
Why Is an Appraisal Contingency Important?
Appraisal contingencies are required for VA loans since they’re insured by the federal government. These contingencies are important because they protect the buyer.
No one wants to be upside down on their mortgage and owe more than their home is worth. Appraisal contingencies are designed to prevent this from happening, or at least make it less likely to happen. If a borrower finds out that the home is worth less than the purchase price, they can simply back out and walk away.
Another reason that appraisals are required for buying a home with a VA loan is that they ensure that the home is safe and inhabitable. To pass a VA appraisal inspection, the property must meet certain requirements regarding safety, sanitation, and structural integrity.
Who Determines the Value of the Home?
The value of a home is determined by an appraiser. This is a professional who has received special training and is licensed by the state to conduct appraisals. It is the appraiser’s job to determine the fair market value of a home. If the borrower is buying a home with a VA loan, the appraiser will also assess the condition of the property. This is done to ensure that the property meets the VA’s requirements and is safe, sanitary, and structurally sound.
Interested in Buying a Home with a VA Loan?
We’re here to help! Call our office today to speak to an expert and get the information you need!