All About USDA Appraisals
An appraisal is required to make sure that the value of the property is known and that it meets all standards set forth by the USDA.
Appraisals are common for most loans, especially loans that are backed by the federal government. An appraisal is used to verify the value of the property and to make sure that it meets the standards of habitability set forth by the government.
Appraisals can be complicated, but when you use our team of experts on the USDA loan process, it is easy. We have access to qualified appraisers who will do the work quickly and effectively, getting everything done right the first time.
What is the buyer's goal when it comes to the appraisal? Ideally, the appraisal should be as high as possible. This is because the appraisal affects the total amount of money that you may be able to qualify for when you are borrowing a USDA loan.
Of course, the buyer has limited control over the amount that the property appraises for. Even so, when the property appraises higher, it becomes much easier to finance more. For example, you may even be able to finance your closing costs.
What are the basic requirements for a property that is financed by the USDA loan? They are:
- The home must be in stable, livable condition before the borrower closes the agreement
- The home must be 'up to code' according to all applicable state guidelines for residences
- The home must be in a qualified rural area as determined by the USDA and related agencies
Although a relatively small number of communities are rural, that still leaves you with literally millions of home options. Some rural communities are a very short distance from major cities.
Appraisers who can operate under USDA guidelines must also meet certain standards:
- They must be in full compliance with the Uniform Standards of Professional Appraisal
- They cannot use any discriminatory factors like age, race, and sex in their determinations
- They must execute the appraisal within three days of the property's acceptance by USDA
Even if the home was built less than two years ago, you will still need an appraisal.
Major problems with the home will typically lower the appraisal value and may need to be dealt with before the sale can be completed. The buyer and seller can negotiate to get issues resolved.
What kind of information does an appraiser look at in order to make his or her judgments?
- The appraiser is intended to determine the reasonable market value of the home as is
- The appraiser will look at recent sales and the value of the homes in the immediate area
- The appraiser will look at the quality and soundness of the overall building construction
- The appraiser will make sales comparisons so that the appraised value is not high or low
- The appraiser will make basic assessments to ensure that the property meets USDA rules
When the appraiser has completed his or her work, then you will receive an appraisal value. You will also find out about any repairs that will need to be done before the home can be sold to you.
Important repairs that are required under USDA guidelines need to be done right away. There may also be minor repairs that are not required by the USDA, but the appraiser will let you know about these for your reference.
The USDA cannot make a loan for a property unless the value of the property demonstrates that the agency's interests will be protected. The property must be adequate to house the borrower.
A qualified appraiser who meets USDA guidelines must visit the home and enact an appraisal based on the Uniform Standards of Professional Appraisal Practice.
He or she must execute the appraisal within three days of notification by the USDA that the property has been accepted by the agency. He or she may not discriminate in any way.
Although the appraiser must be on the USDA approved list, a third-party inspection agency may also be used. Any home built two years ago or more must be inspected. The home needs to be livable, up to code, and modest in size, amenities, design, and price.
The appraiser discovers and reports the condition of the home to assess its value and determine if any repairs need to be made. The appraiser must submit a 'Market Conditions Addendum to the Appraisal Report' to compare the home value with nearby homes.
Inspections that the appraiser executes include:
- Visual inspection of the foundation, crawl spaces, attics, basements
- Inspection for termite, mold, and any other wood-boring organisms
- Basic review of the plumbing, electrical, and mechanical systems
The appraiser is not an engineer and will test most items simply by turning them on and off.
What kind of loans does USDA offer?
A USDA loan is a 30-year fixed home mortgage loan intended for people moving into a permanent residence in qualified rural areas. It offers competitive rates with no money down and is insured by the U.S. government.
What are the major program restrictions?
If you own other property, the other property must not be within commuting distance. You cannot add other living units or income-producing structures to your USDA property, such as barns or corrals, and you may not be able to qualify with an in-ground pool. If you are in a flood zone, special steps must be taken.
Does the USDA loan process differ from other federal loans?
The process does not differ significantly. The full process usually takes about 30 days.
What advantages does the program offer?
The program offers zero down payment, no loan limits, no need for cash reserves, optional financing of closing costs, unlimited seller concessions, and options for those who are not first-time buyers.
What properties can be purchased?
Properties must be owner-occupied, must be in a rural area, and must be a single-family home, condo, new manufactured home, or townhome. This includes planned unit developments.
When is the appraisal done?
The appraisal must be done within three days of property acceptance by the USDA.
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