VA Loan Appraisals, Closing Costs, & Required Occupancy

Written by guest blogger H.C. "Hutch" Hutchison, Ed.D.

VA Appraisal
Everyone wants to get good value for their money when they make any type of a purchase, especially if the purchase is several thousand dollars! To ensure that a veteran is not paying more for a house than what it is worth, the VA requires a VA Appraisal.

The VA will not guarantee a home loan unless the property is appraised (for value) by a VA-assigned fee appraiser. The required VA Appraisal can be requested by the buyer, seller, real estate agent, or lender (normally, the lender is the requester) by completing and submitting a VA Form 26-1805, Request for Determination of Reasonable Value. Upon completion of the appraisal, the requester pays for the appraisal according to a fee schedule approved by the VA. This VA Appraisal estimates the value of the property.

The VA Appraisal is not an inspection and does not guarantee that the house is free from any defects. A home inspection can be completed by a qualified home inspector to determine what, if any, problems or defects exist. The VA only guarantees the loan, not the condition of the property.

Closing Costs
When purchasing a home, closing costs must be paid in cash for such items as the title search, recording fees, hazard insurance premiums, and prepaid taxes.

If I want to refinance, do I still have to pay these costs in cash?

Normally when refinancing a VA loan, closing costs may be, but are not required to be, included in the loan amount, as long as the total amount of the loan does not exceed the value of the property. A loan with the purpose of reducing the interest rate on a loan may include closing costs and include a maximum of two discount points.

Points, sometimes called "discount points", are a form of pre-paid interest. One point equals one percent of the loan amount. Borrowers can offer to pay points as a method to reduce the interest rate on the loan, thus obtaining a lower monthly payment. For each point purchased, the loan rate is typically reduced by 1/8%.

Law requires that a VA funding fee also be associated with a VA guaranteed loan. The fee is intended to enable the veteran who obtains a VA home loan to contribute toward the cost of this benefit, and thereby reduce the cost to taxpayers.

Required Occupancy
One requirement for eligibility for a VA home loan is required occupancy. That means that the veteran (or the spouse of an active duty service member) applying for the loan must certify that he or she intends to occupy the home as a primary residence. However, when refinancing a VA guaranteed loan to reduce the interest rate, only prior occupancy must be certified.

H.C. “Hutch” Hutchison, Ed.D., retired from the U.S. Army in 1991, after more than twenty-two years of active duty. Since then, the former helicopter test pilot and aviation maintenance officer has earned his third post-graduate degree and taught under-graduate and graduate courses. In addition to practicing real estate with Coldwell Banker Sea Coast Realty, Hutchison is active in national, state, and local leadership organizations and local chapters of the Vietnam Veterans of America, Veterans of Modern Warfare, Disabled American Veterans, Veterans of Foreign Wars, and United States Army Warrant Officer Association.