Questions about the physical condition of the home, building a home, and its appraised value.

Q: Can I build a new home with a VA loan? Can I be my own contractor?

A: Although they are allowed by law, most lenders do not make construction loans for VA loans, largely due to risks and costs of construction disputes. You can be your own contractor, but you will have to find your own source for construction financing. Once the home is complete, you could then get a VA loan to refinance the construction loan. Funds from the VA loan could also be used to pay off the balance of the loan on the land, provided that the total VA mortgage amount does not exceed the VA reasonable (appraised) value of the property. The house would be considered an existing home once construction was complete. It would have to meet VA Minimum Property Standards that apply to existing homes. These can be found in chapter 13 of the lender's handbook.

Q: Will the appraiser make sure everything is o.k. with the home I am buying?

A: No. The appraiser is not an inspector. VA does not guarantee the condition of the house you are buying. VA guarantees only the loan. If you have any doubts about the condition of the house which you are buying, it is in your best interest to seek expert advice before you legally commit yourself in a purchase agreement. Particularly with a previously occupied house, most sellers and their real estate agents are willing to permit you, at your expense, to arrange for an inspection by a qualified residential inspection service. Also, most sellers and agents are willing to negotiate with you concerning what repairs are to be include in the purchase agreement. Steps of this kind can prevent many later problems, disagreements, and major disappointments.

Q: The reasonable value came in lower than the amount I agreed to pay for the house. Is there any way I can still purchase it?

There are basically three options.

1. Renegotiate the purchase with a lower selling price.
2. Pay the difference between the selling price and the reasonable value yourself, since the loan cannot exceed the reasonable value plus the funding fee.
3. If you believe there is an error in the appraisal, you can ask the local VA office to review it. Be sure to specifically identify where you believe the appraisal is in error and why.