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Understanding the USDA Appraisal Process

An appraisal is a way that lenders obtain an independent 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’re financing a property, your lender typically owns 80 to 100 percent of what you’re “buying,” at least until you pay off that loan in full. They want to make sure that if you fail to pay back the loan, they can sell the property for enough money to cover their losses. Hence, the appraisal.

USDA loans have a different appraisal process than the one for conventional mortgages. Not only is your appraiser determining the fair market value of the property, but they’re ensuring that it meets all the standards set by the USDA.

Let’s take a look at what that means.

USDA Appraisal Requirements

Every loan that’s guaranteed by the USDA has to have an appraisal. Lenders are required to utilize independent appraisers with proper licensure or certifications.

During an appraisal, the appraiser will evaluate the property in person, assessing it both in terms of valuation and in light of USDA property condition guidelines.

They’ll assess the property’s fair market value in part 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 a home has to meet during the appraisal to qualify for a USDA loan? Appraisers follow these guidelines during a USDA appraisal:

  • The home must be in a qualifying rural area.
  • The house has to be structurally sound, with a foundation and roof in good enough repair that you can live in the house right away.
  • There has to be access to the home from a paved or all-weather road surface.
  • The heating and cooling systems have to be working (again, it has to be in livable condition).
  • The electrical system and wiring have to be in good repair, with no exposed or frayed wiring. It has to be robust enough to support the appliances and functions typical to a house the size of your house.
  • The plumbing system has to be functional and have a waste removal system that works.
  • The well and septic systems must be at least 100 feet away from the house.
  • There can’t be any evidence of termite or wood-boring insect damage.
  • The land can’t be worth more than 30 percent of the value of the home.
  • There can’t be any buildings whose primary purpose is to produce income. For example, barns, silos, commercial greenhouses, and livestock facilities designed for commercial enterprises aren’t allowed if they’re still being used to generate income.
  • The house has to be legal according to local zoning ordinances, or else have already been granted a legal exemption by the local zoning authority.
  • There can’t be a pool (or, if there is a pool, the appraiser won’t be able to assign it value).
  • It has to meet all state and local guidelines, including building codes.

When Does the USDA Appraisal Happen?

Lenders will order an appraisal once a borrower is under contract on a home. Turn times and costs for USDA appraisals can vary depending on where you’re buying and more.

Borrowers who start the loan process with one lender but later work with a new lender can have a USDA appraisal transferred, rather than pay for a new appraisal. Typically, the appraisal report cannot be older than 150 days by the time you close on your loan.

USDA Appraisal FAQs

What does a USDA appraiser look for?

Your appraiser will be looking to see that the house and property meet USDA requirements, as well as determining the fair market value based on “comps,” or comparable properties that have recently sold in your area. Some major things they’ll be checking include:

  • The square footage. Your appraiser will measure this to help determine value.
  • The number of bedrooms and bathrooms.
  • The home’s condition. The USDA requires the home be in livable condition, with a functional roof, foundation, plumbing and wastewater removal system, electrical system, and HVAC systems.
  • That there is access to the property. The USDA requires that the property be accessible by a paved or all-season road.
  • Site specifications. The USDA doesn’t permit income-generating structures or pools, and the land can’t be income-generating or worth more than 30 percent above the value of the home. Wells and septic systems must be at least 100 feet from the home.
  • Local zoning and code compliance. Your house must be in compliance with local and state zoning and code requirements.

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

It will vary by lender, but the USDA does allow lenders to pass the cost of the appraisal to the buyer. It may also be included in your closing costs. Typically, a USDA appraisal costs between $400 and $500.

Do I need an inspection to qualify for a USDA loan? How is an appraisal different from an inspection?

The USDA doesn’t require an inspection, but it’s a smart move for buyers to do anyway. Appraisals are ordered by your lender to obtain a fair market value for the home. Generally, the appraiser will be checking to make sure the home meets all the USDA requirements, but won’t evaluate the property beyond that.

An inspector will be much more thorough, and will help you understand exactly what condition all of the home’s systems are in.

The inspector will show you any issues they find with the foundation, floors, walls, electrical, HVAC, plumbing, roof, or other parts of the house. They’ll also give you a sense of how much longer you can expect things like your hot water heater, furnace, air conditioner, and other major systems to last.

The buyer absorbs the full cost of the inspection, but it’s almost always money well spent. In fact, if possible, it might be wise to have inspection done before you move forward in the buying process to the point of getting an appraisal, to ensure you are making a smart investment in the home.

Does the USDA require a separate pest inspection?

No, the USDA doesn’t have a pest inspection requirement, so unless your lender, appraiser, or state or local law requires it, a pest inspection is not necessary.

USDA Appraisals Protect You and Your Lender

In the end, getting your property appraised helps ensure that what you’re buying is priced correctly and meets the USDA’s requirements for a loan.

While the process might feel a bit nerve-wracking, it’s a way to protect yourself and make sure you’re spending your hard-earned cash on a home that will stand the test of time.