If you need a mortgage, you need an appraisal, right? That’s how the thinking goes and for the most part, it’s true, except when it comes to the VA loan. There are certain VA loans that don’t require an appraisal.
Keep reading to learn which programs don’t require an appraisal when looking at VA loans.
The VA Purchase Loan
The VA purchase loan is one loan that you definitely need an appraisal. The appraisal is how the lender knows how much a home is worth. As far as VA financing goes, you are able to borrow up to 100% of the home’s value for a loan.
If a home doesn’t appraise for at least as much as the purchase price of the home, the lender can only lend you as much as the appraised value of the home. This is why many buyers put an appraisal contingency on their purchase contract. This way if the home doesn’t appraise for as much as you thought, you can back out of the contract penalty free.
The VA Cash-Out Refinance
Another VA home loan that requires an appraisal is the VA cash-out refinance. This loan allows you to tap into your home’s equity. In fact, it allows you to borrow up to 100% of your home’s current value. It’s the only loan of its type in the industry.
Because of the riskiness of the cash-out loan, the VA does require an appraisal for this loan as well. In fact, it works to your advantage to pay for an appraisal for your cash-out refinance. If your home appreciated, you’ll be able to borrow more money, if that’s the case. But lenders need the appraisal to know the current fair market value of your home so that they can determine how much they should lend you.
The VA IRRRL – Interest Rate Reduction Refinance Loan
The VA IRRRL program is a unique program offered by the VA. It’s also known as the streamline refinance. With this program, you don’t need an appraisal. In fact, you don’t need to verify your credit score, income, or assets either.
The VA allows lenders to base your approval on your mortgage payment history. If you have paid your mortgage on time for the last 12 months and you can prove that you benefit from the refinance, that’s all the VA requires.
This means you could be upside down on your home and still refinance with the VA IRRRL. Veterans can use this program to lower their payment to make it more affordable or to get a better term. It’s a valuable program for those homeowners that are upside down on their loan because no other loan program would allow them to refinance, leaving them stuck in a dead end loan.
The Lender’s Requirements
Keep in mind that the lender has the final say. As long as they follow the VA’s basic rules, the lender can add their own requirements as they see fit. Where this might affect you the most is the VA IRRRL program. Some lenders may not be comfortable with giving you a loan based only on your mortgage payment history. They may want to know the value of your home.
In some cases, this may mean just a drive-by appraisal or even an automated valuation (done on a computer). Some lenders, though, may require the full appraisal just to make sure that they aren’t getting in over their head. It’s important to ask up front what lenders want so that you know what to expect.
If you do need an appraisal for your VA loan, expect to pay around $300 – $400 for a full appraisal. The appraisal can be helpful, though, as it helps you get the loan that you need, whether it’s for a purchase loan or a cash-out refinance.