The loan appraisal is a big deal for any loan. It’s what lets the lender know that you have enough collateral should you default on your loan. The USDA loan appraisal does have a few nuisances that you should understand before you apply for the USDA loan.
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The USDA Guidelines
The largest difference with the USDA loan appraisal is the USDA guidelines. The USDA has the final say in whether your loan gets approved or not. Because of this, they can impart their own requirements on the appraisal. While they aren’t anything out of the ordinary, they are still important to know.
- The home must be livable. In other words, you must be able to move into the home right after the closing. If there are major issues that prevent you from living in the home, it’s not eligible for USDA financing.
- The home must be up to code. Your city and/or county have codes that each home must meet in order to be livable. The USDA appraiser must make sure the home lives up to these codes.
- The appraiser must be able to determine that the home is located in a rural location according to the USDA maps.
These basic guidelines help USDA appraisers determine if a home is suitable for USDA financing. Below we will go into detail regarding what the USDA appraisers evaluate.
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The Intricate Details of the USDA Appraisal
- There can’t be any holes in the roof, walls, or any other permanent structure.
- There can’t be any broken windows or doors.
- All utilities including the furnace must be in good, working condition.
- All electrical and plumbing systems must be in good, working condition.
- The well and septic systems must be in good condition as well as at least 100 feet away from the home.
- The house must have year-round street access.
- The attic and basement must be in good condition. There can’t be any water, mold, or pest damage.
- The foundation must be in good condition without any cracks or foundational issues.
What the Appraiser Cannot Include
Because the USDA loan is for families with small to moderate income, the home must be moderate too. The appraiser must determine that the home is large enough for a family of your size, but not excessively large.
In addition, the appraiser cannot include:
- Pools or other outdoor luxuries in the value of the home
- The value of the land if it exceeds more than 30% of the value of the home
Remember, the appraiser is not an inspector. While it may sound like he has to look for the same things an inspector looks for, an inspection is more intricate. The appraiser’s job is to make sure the lender is protected before they lend you the money to buy the home. The inspector protects your investment by making sure there aren’t major issues with the home that could turn it into a money pit for you.