You’ve found your home, gotten a VA loan pre-approval and the seller has accepted your offer.
You’re finally on your way to owning the home of your dreams – until the VA appraises the home’s value as less than expected. Now your loan is in jeopardy. Is there anything you can do to get the closing back on track?
Fortunately, all is not lost if your appraisal comes in low.
The VA’s tidewater and reconsideration of value (ROV) processes can help you get your dream home, even if the appraisal doesn’t match the sale price.
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What Is the Tidewater Initiative?
If you are buying a house with a VA loan, an independent VA appraiser has to certify that it is worth at least the mortgage loan value. You can read more about the VA loan process here.
Selling prices of similar homes are a key factor in the VA’s appraisal process, according to the VA’s lender handbook, VA Pamphlet 26-7. Appraisers consider comparable properties in your area to estimate your prospective home’s value.
The Tidewater Initiative Process
The VA tidewater initiative requires VA appraisers to notify the lender in advance if the house appears like it won’t appraise as expected, according to VA Circular 26-17-18. The lender then has two business days to provide additional information to the VA appraiser for reconsideration.
Your lender or your real estate agent may be able to provide more comparable properties (or “comps”) to justify the home’s sale price. Due to their knowledge of the local housing market, the lender and buyer’s agent might have access to more relevant comps than the VA appraiser used in the original valuation.
If the appraiser agrees these new comps are relevant, they will re-evaluate their estimation of the home’s value. Then, the VA appraiser will publish a final assessment of the home’s worth in a Notice of Value (NOV). If the lender provided additional comps, the appraiser must disclose whether they used them or not. If they didn’t, they must justify the comps exclusion in an addendum to the NOV.
What Happens If the Appraisal Comes in Low on a VA Loan?
If the VA appraisal doesn’t support the purchase price even after the tidewater process, you still have a few options to keep the sales contract on track for closing.
The next step you should consider is approaching the seller with the information on the VA appraisal value. Depending on the market and the owner’s motivation to sell, you might find the owner is willing to lower the sales price to appraisal value. This is a win because you will pay less for the property and have lower monthly mortgage payments.
If the seller isn’t willing to lower the price, you can appeal to the VA to reconsider the appraised value.
What Is a Reconsideration of Value?
A VA reconsideration of value (ROV) is a formal process that you, the borrower, initiate to ask the VA to increase the appraisal value of the home you want to buy. You can initiate this process through your lender, but you must do so in writing, according to VA-Pamphlet 26-7.
How a Reconsideration of Value Works
You can appeal for an ROV based on two reasons, according to these reconsideration of value requirements. You can either request the ROV based on different sales data than the appraiser used initially or based on a disagreement about the factual data or analysis in the appraiser’s report.
If you are requesting an ROV based on different sales data, here are some things you should include in the request, according to the VA:
- A sales grid of three comps of houses that have…
Read More: Low VA Appraisal? Try VA Tidewater and ROV