Informational Insights – VA Loans Regarding Unpermitted and/or Non-Conforming Property Additions

A VA loan can potentially be made on a property with unpermitted additions or non-conforming areas, but it comes with challenges and conditions that must be addressed. Here’s how it works, what steps to take, and the concerns involved:

Key Considerations for VA Loans on Properties with Unpermitted Additions

1. VA Minimum Property Requirements (MPRs):

• VA loans require that the property meets MPRs, which ensure the home is safe, sanitary, and structurally sound.
• Unpermitted or non-conforming areas may not meet these requirements, leading to issues during the appraisal and underwriting process.

2. Appraisal and Lender Scrutiny:

• A VA-approved appraiser will evaluate the property. If they note unpermitted additions or non-conforming areas, it could affect the property’s valuation or flag concerns about safety and compliance.
• The lender must be comfortable with the risk posed by unpermitted features.

Steps for Buyers and Sellers:

For Sellers:

1. Disclose Unpermitted Work:
   • Transparency is critical. Disclose any unpermitted additions to potential buyers and in the seller’s disclosure statement.
2. Consider Bringing Additions into Compliance:
   • Obtain permits and ensure the work meets local building codes. While this may involve costs, it can streamline the loan process and attract more buyers.
3. Provide Documentation:
   • Offer any available blueprints, plans, or records that demonstrate the quality and safety of the unpermitted work.

For Buyers:

1. Consider Requesting An Appraisal Contingency:
   • Possibly include an appraisal contingency in the offer to protect against issues arising from unpermitted additions.
2. Consult with Your Lender:
   • Discuss the specific property concerns with your VA loan officer. Some lenders are more flexible than others regarding unpermitted work.
3. Negotiate Repairs or Compliance with the Seller:
   • Negotiate for the seller to bring the property into compliance or offer credits to offset future permitting costs.

Concerns and Reasons Why a Loan Might Not Be Approved:

1. Safety and Structural Integrity:
   • If the unpermitted area raises safety concerns (e.g., faulty wiring, poor structural work), the VA may deny the loan.
2. Impact on Appraisal Value:
   • Unpermitted work might not be counted toward the home’s value, leading to a lower appraisal and potentially requiring the buyer to cover the difference in cash.
3. Non-Conformance with Zoning:
   • Non-conforming areas may violate zoning laws, further complicating the loan approval.
4. Future Legal or Financial Risks:
   • Lenders may hesitate if unpermitted additions pose risks of fines, penalties, or required demolition.

Final Thoughts:

A VA loan is possible on a property with unpermitted and or non-conforming additions, but it requires a proactive approach from both the buyer and seller. Ensuring the property meets MPRs and addressing lender concerns can help move the process forward. Consulting a VA loan specialist, an experienced real estate agent/broker, and possibly a contractor familiar with permitting will improve the likelihood of success.