The USDA (United States Department of Agriculture) offers loans to qualifying rural property owners to assist them in purchasing a home. This type of loan is different to a conventional mortgage due to the lower interest rates offered, so there are different requirements for appraisals set by the USDA.
The Need for USDA Approved Appraisals
An appraisal is necessary to determine the value of a property, and for a lender to establish a fair market value for their investment in a default situation. For a USDA loan however, an appraisal must prove that the property meets certain standards before your loan can be approved. This is to ensure that the property is in accordance with their conditions guidelines and eligibility requirements.
The USDA will complete an administrative review of the quality of each appraisal to ensure compliance with the relevant regulations, and to determine whether or not there is evidence to support the valuation. They can also decide that an appraiser is ineligible to carry out the appraisal if they do not meet the necessary requirements. So it’s crucial to make sure an appraisal is USDA approved in order to secure a loan.
USDA Approved Appraisal Requirements
The USDA requires that approved lenders provide current appraisals for the property in question. All appraisals must be carried out by a licensed and qualified appraiser and must comply with USPAP guidelines.
It is their job to ensure that the appraisal is accurate and thorough, and includes any deficiencies, hazards, or observable issues they find when inspecting the property. They also need to use data from comparables or ‘comps’ in the vicinity to help determine the property’s fair market value.
The purpose of this appraisal is to make sure that the property meets the USDA’s eligibility requirements — for example, the property must be in an USDA-qualifying rural area, must be accessible, and must be in liveable condition. The appraisal must also confirm the functionality of all heating and cooling systems, electrical wiring, and septic and plumbing systems.
USDA Approved Appraisal Summary
A USDA approved appraisal must be carried out to determine a property’s value, but also to ensure that it is eligible for a USDA loan. This requires having a qualified and licensed appraiser inspect the property, to verify that it is in liveable condition, and to note any deficiencies or hazards. All appraisals are subject to administrative review, so it is essential that they meet the USDA’s requirements.