VA loans require an appraisal, just like any other loan. Lenders cannot lend you money on a home until they know how much the home is worth. The VA takes it one step further, though. Rather than accepting the appraised value from the appraiser as is, the VA’s staff reviews the appraisal. They then release the Notice of Value or NOV. This is the official document stating the home’s value and is what stays with the loan documents even after you close.
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What is the Notice of Value?
The Notice of Value is a document the staff reviewer of the appraisal creates. The staff reviewer can be a staff member from the VA or the lender itself. Either way, it’s a neutral third party making sure the value of the home makes sense. If a lender does not have a Staff Appraisal Reviewer, they will send the appraisal to the VA to review.
The SAR will go over the report and make sure the value is in line with the comparables in the area. He/she will also make sure that the home meets all VA guidelines. These guidelines are pretty standard for any loan program, but the SAR must make sure they are met no matter what.
Once the SAR is done reviewing the case, he or she will issue the NOV.
Repairs Recorded on the Notice of Value
Aside from providing the final value for the home, though, the NOV also records any necessary repairs. These repairs will need to be completed before the loan can close. Sometimes they are minor repairs that will bring the home up to VA guidelines. Other times it is something as simple as a termite inspection that was not yet completed.
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Whatever the conditions are that are recorded on the NOV, though, must be met before the loan can close. Usually, the appraiser or another official will need to re-inspect the property to make sure that the conditions have been satisfied.
What if the NOV is Lower Than the Purchase Price?
The NOV may come in lower than the purchase price – this is a risk you take. It actually happens more often than you may realize. Whatever the Notice of Value comes in at, though, you may only borrow that much. Let’s say you agreed to buy a home for $150,000, but the NOV came in at $145,000. You would only be able to borrow $145,000 to buy the home. The seller would either have to agree to that new amount or you would have to come up with the $5,000 in cash.
However, because this is a VA loan, though, you have the option to walk away from the purchase. Even if you didn’t have an appraisal contingency in your purchase contract or if you passed the deadline, you can still walk away. The VA provides you with that protection via the mandatory escape clause on every VA purchase.
The VA provides veterans with many protections in order to ensure that they are making a good investment in a home. With the multiple protections surrounding the appraised value, you know you are getting a good investment when you get through the process. If you decide to pay the cash difference on a home, it’s a risk you are fully informed of and decide you are willing to take.