USDA Appraisal Guidelines: What Homebuyers Need to Know​

What You'll Learn in This Article

• What Is An Appraisal?
• USDA Appraisal Requirements
• What Are USDA Appraisers Looking for?
• When Does the USDA Appraisal Happen?
• USDA Appraisal FAQs

What Is An Appraisal?

An appraisal allows lenders to obtain an independent assessment of value for a property. It’s a crucial part of any loan process because it establishes a fair market value that helps the lender protect their investment. If you fail to repay your loan, lenders want to ensure they can sell the property for enough money to cover their losses.

USDA loans require a different appraisal process than conventional mortgages. Conventional mortgages are not backed or insured by a government agency, unlike USDA loans, which are backed by the U.S. Department of Agriculture. Not only does an appraiser determine the fair market value of a property, they also ensure it meets all standards set by the USDA.

Let’s take a look at the details you need to know about USDA appraisals.

USDA Appraisal Requirements

Every loan guaranteed by the USDA must have an appraisal completed by an independent appraiser with proper licensure or certifications.

During an appraisal, an appraiser will evaluate the property on site, assessing it in terms of valuation and in light of USDA property condition guidelines. They’ll also assess the property’s fair market value by looking at recent comparable home sales in the area, which are commonly known as “comps.” After the appraisal, they’ll send your lender a report with their findings.

Lenders are responsible for ensuring appraisals are independent, thorough, and accurate.

What Are USDA Appraisers Looking for?

So what are the requirements an appraiser must follow to qualify for a USDA loan? The home must:

• be in a qualifying rural area,
• be structurally sound, with a solid, move-in ready foundation and roof,
• be accessible from a paved or all-weather road surface,
• have working heating and cooling systems,
• have an electrical system in good repair, with no exposed or frayed wiring (these systems must be robust enough to support the appliances and functions typical to a house that size),
• contain a functional plumbing and waste removal system,
• have a domestic well (if it doesn’t use public utilities) a minimum of 50 feet from the septic drain field, though it might be more, depending on local or state codes,
• not have evidence of termite or wood-boring insect damage,
• not sit on land worth more than 30% of the home’s value,
• not share a property with buildings that produce income (for example, the property can’t contain barns, silos, commercial greenhouses, and livestock facilities designed for commercial enterprises if they’re still used to generate income),
• follow local zoning ordinances, state and local guidelines, and building codes, and
• not have a pool.

When Does the USDA Appraisal Happen?

Lenders will order an appraisal during the underwriting process, which is an in-depth overview of the buyer’s credit and financial background. USDA appraisals generally take about a week, but this can vary depending on location, geography, and demand for appraisers.

Borrowers who start the loan process with one lender but later work with a new lender can have a USDA appraisal transferred, rather than having to pay for a new appraisal. The appraisal report cannot be older than 150 days at closing.

USDA Appraisal FAQs

What if a USDA appraisal is higher than the purchase price?

If an appraisal is higher than the purchase price, it’s good news for the buyer, and you’ll get immediate home equity in the home. For example, if the home is worth $250,000 and you purchase it for $210,000, you’ll have immediate $40,000 in equity.

Who pays for a USDA inspection (and how much does it cost)?

The USDA doesn’t require an inspection, but buyers should get one anyway. Your lender orders an appraisal to obtain a fair market value for the home. The appraiser will check to ensure the home meets all USDA requirements, but won’t evaluate the property beyond that. You’ll contact an inspector on your own — your lender won’t do it for you.

The buyer or seller may pay for an inspection, which is different from an appraisal. An inspection is a more in-depth view of a home’s systems to identify problem areas. For example, a qualified inspector will check out basic safety features, the foundation and exterior, the roof, major systems (such as electrical and plumbing), and ventilation. Getting an inspection can save you a lot of money later on or could cause you to walk away from the purchase if an inspector finds major problems. They’ll also give you a sense of how much longer you can expect the major systems to last.

Inspections can cost between $290 and $420, depending on where you live, the home’s size and age, and how far away the inspector has to travel to get to the house. You may pay more for an inspector with more experience.

Does the USDA require a separate pest inspection?

No, the USDA doesn’t require pest inspections. They are not necessary unless your lender, appraiser, or state or local law requires them.

USDA Appraisals Protect You and Your Lender

In the end, getting your property appraised helps your lender ensure your home is priced correctly and meets the USDA’s loan requirements.

Alongside an appraisal, consider getting an inspection. While the process might feel a bit nerve-wracking, an inspection can also help you protect yourself and ensure you’re spending your hard-earned cash on a home that will stand the test of time.