The USDA Loan Appraisal plays a large role in the loan approval process. Just as is the case with any loan, the value needs to be there in order to secure funding. However, a major difference with the USDA appraisal is that it must meet all USDA guidelines. These guidelines differ from a standard conforming appraisal.
The Basic USDA Requirements
To sum up the USDA requirements, the home must meet the following requirements:
- The home must be livable without any major issues
- The home must meet all applicable codes
- The location must be rural as determined by the USDA
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The Appraiser’s Job
The USDA appraiser has many jobs to complete when processing a USDA loan appraisal. These jobs include:
- Determine the value of the property prior to any repairs or renovations (the as-is value)
- Determine applicable comparable sales in the area within the last 3 months
- Determine the structural soundness of the home
- Calculate an accurate value for the home based on the comparable sales in the area
- Carefully evaluate that the home meets all USDA regulations
The USDA Rules
Understanding the USDA rules will help you determine what the appraiser looks for in a property. These rules include:
- The home must be livable right away. This means things like holes in the roof, broken windows, non-working furnaces, or electrical problems are not allowed. The safety and soundness of the home must be intact.
- The value of the land cannot exceed more than 30% of the value of the home. The USDA does not restrict the size of the land, just the value of it.
- The well and septic systems must be at least 100 feet away from the home.
- If there is a pool, the appraiser cannot assign it any value.
- The house must have street access.
- All roads leading up to the house must be properly maintained.
- The appraiser must inspect all areas of the attic, basement, and crawl spaces.
- The appraiser must inspect the foundation for soundness.
- There cannot be evidence of any termite or wood-boring insect damage.
Keep in mind, the appraiser is not an inspector. As much as he will turn electrical, heating, and water systems on and off, he will not inspect them for any potential issues. He needs to make sure everything is in good working condition. He also needs to make sure there are no obvious issues or threats to the livability of the home. Other than that, the appraiser simply determines the value of the home; he does not delve further into the condition of each aspect of a home.
It is to your benefit to secure a home inspection before the appraisal. This way you know the condition of the home and whether you want to invest in it. Sometimes there are problems with homes that go unseen. Knowing what you are getting into can help you decide if this is the investment you want to make. Once you decide you do want to invest in the home, you can pay for the appraisal and see if the value is there that you need. This way you can feel confident in the home that you purchase.