There are many VA loan myths, especially related to permitted work and home appraisals. These myths, unfortunately convince some people avoid VA loans. However, with the right information, you’ll see that a VA loan is a great option if you are eligible.
To help understand the situation, let’s look at some of the details for other loans in regards to conforming high-balance and down-payments using non-VA loans.
First of all, the conforming balance for a non-VA loans limits is $649,750. In this case, the loan would require a down payment of $75,250. There would also be additional costs, which would eliminate the available cash to construct the additional unit or reconstruction. To use this program, the maximum allowable debt-to-income ratio is 50%.
Jumbo loans may also be considered. Jumbo loans are basically any loan that exceeds the $649,750 limit. For these, 5% down is available at a maximum debt-to-income ratio of 43%. Many loans will be in excess of that ratio.
This means that VA loans will likely be the best product for many people. But what if there is unpermitted work at the property? Will the VA support the loan? Despite one of the common myths in real-estate lending, yes, the VA will support the loan in this situation.
VA Loan Myth: Permitted Work and VA Home Appraisal Requirements
What is “Unpermitted” Property?
While people are generally free to do what they want with their own property, some projects required permits. These permits can cover a wide range of projects depending on the specific location, and can include things like roofing, new additions, kitchen remodeling, and electrical work.
The purpose of permit requirements is to ensure that every home is safe and reliable. Electrical work is the perfect example. If permits were not required, homeowners could make changes to electrical systems however they want, which could be extremely dangerous. With permits, however, the dangers of unprofessional electrical work are reduced.
Some houses, however, have work that is completed without permits. This is considered “unpermitted,” and while some of the work can be of a high quality, there is a chance that the work could be substandard.
Why is Lack of a Permit a Financial Risk?
Construction that is less than professional or not up to code can not only look bad, it can create safety hazards. If you purchase a property with unpermitted construction, you basically assume the risk that further work may be required. If something goes wrong, you are the one who has to pay, and if the building department becomes aware of unpermitted work, you may have to pay for a wide range of expensive repairs and renovations. You’ll have to get the building permitted or, if it can’t be permitted, you may have to remove the changes that were not allowed.
If renovations have to be removed because they were unpermitted, you’ll have to pay for things like demolition. You’ll also lose the value that was added to the property. For example, if the property had a new wing added to one side of the house, but the addition was unpermitted, you may have to pay not only for demolition, but the home will have a reduced value once the addition is removed.
For this reason, many lenders avoid making loans on unpermitted homes. The VA, however, will assist with this situation.
Loan On “Unpermitted” Properties are Allowed
Despite the potential risks, the VA does not enforce local building codes for existing properties. In fact, the VA does not require any work permits, but any unpermitted areas of the property must meet the VA’s Minimum Property Requirements (MPR) only, no other requirements will be enforced. However, the unpermitted area must have been completed in a professional, workmanlike manner. If there are any violations of the VA’s MPR, there will need to be conditions for repairs to fix the issue. In some cases, the issue may be beyond the expertise of a specific individual, which may mean that the home will require an inspection. These inspections, however, will not be recommended for liability purposes alone.
If any areas are unpermitted, they may be disclosed and comments can be made on the impact to the home’s value. There will also be market-supported adjustments when needed.
The Truth: VA Loan Appraisals Can Be Simple, Easy, and Convenient
There is another myth related to VA loans, but it’s more broad and general. There is a thought that, overall, a VA appraisal and inspection can be extremely difficult. This is simply not the case. If buyers are looking to purchase a home that is in poor condition, than absolutely the appraisal and inspection process can be tough. However, if the home is in quality condition, the appraisal can go very smoothly. As we discussed earlier, appraisers use the MPR guidelines to determine if a home is safe and structurally sound. These requirements include many factors. For example, the plumbing and electrical systems must be in good condition, and the heating must be reliable. The roof will need to be in decent shape, and loose paint will ned to be scraped and repainted. There can be no leaks, no excessive dampness, and no defective construction or decay. Also, there must be no termites or destructive insects, and there can be no fungus growth or dry rot.
This might sound like a lot of details, but these are basic requirements for most home inspections. Basically, VA loans are not meant to fund the purchase of a fixer-upper home; the VA is looking to fund the purchase of a solid, safe home that is ready for residents the moment it is purchased. Despite the myth, if you choose a quality home the VA appraisal will be simple.
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If you want assistance with a VA loan, contact San Diego Purchase Loans today. We’ll help you find the right loan for your specific situation, allowing you to have a wonderful home that will keep you happy for years.
Let us put our common-sense approach to lending to work for you!
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