USDA Appraisal Requirements and Guidelines
A USDA appraisal does two jobs at once: it confirms the home's fair market value and verifies that the property meets USDA condition standards. We will cover the full checklist, how the process works, who pays for it, and what happens if the appraisal turns up an issue.
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. A government agency does not back or insure conventional mortgages, unlike USDA loans, which the U.S. Department of Agriculture backs. An appraiser doesn't just determine the fair market value of a property, they also confirm it meets the standards the USDA sets for rural housing.
Let's take a look at the details you need to know about USDA appraisals.
Every loan guaranteed by the USDA must have an appraisal completed by an independent appraiser with proper licensure or certifications. The appraisal serves two main purposes.
1. Establishing a Fair Market Value
The appraiser assesses the property's fair market value by looking at recent comparable home sales in the area, commonly known as comps. Your loan will be based on whichever is lower, the appraised value or the purchase price.
2. Checking the Property Against USDA Standards
The appraiser also evaluates the home against USDA property condition guidelines to confirm it's safe, structurally sound, and livable. Afterward, they send your lender a report with their findings covering both value and condition.
Lenders are responsible for ensuring appraisals are independent, thorough, and accurate.
Understanding the USDA appraisal checklist can help you spot potential issues before an appraiser visits the home.
Here’s what a USDA appraiser looks for:
Lenders order an appraisal during underwriting, the in-depth review of the buyer's credit and financial background. USDA appraisals generally take about a week, though this can vary depending on location, geography, and local demand for appraisers.
Borrowers who start the loan process with one lender but later switch to a new one may be able to transfer the appraisal rather than pay for a new one. However, the report can't be older than 180 days at closing.
If the appraisal comes in higher than the purchase price, that's good news: you get immediate equity in the home. For example, if a home is worth $250,000 and you purchase it for $210,000, you'd have $40,000 in equity right away.
Keep in mind that a higher valuation doesn't increase your loan amount, which is still based on the purchase price, but it can improve your loan-to-value ratio and may free up room to roll closing costs into the loan.
An appraisal can raise concerns for two main reasons: the home appraises for less than the purchase price, or it doesn't meet USDA property condition standards. What happens next depends on which one you're dealing with.
Since USDA loans often involve zero down payment, the loan amount depends heavily on the appraised value. For example, if the home you agreed to buy for $220,000 only appraises for $200,000, you have a few options:
If the appraiser flags an issue, like exposed wiring, a failing roof, or a well that's too close to the septic system, the loan generally can't close until it's resolved. Here's how that typically gets handled:
Once repairs are complete, a follow-up inspection or re-appraisal typically confirms the fix before underwriting moves forward.
Lenders 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 may be able to have a USDA appraisal transferred, rather than having to pay for a new appraisal. However, the appraisal report cannot be older than 180 days at closing.
USDA loans do not require a home inspection, but they do require an appraisal.
The two serve different purposes: the appraisal confirms fair market value and checks the home against USDA property condition standards, while an inspection gives a much more detailed look at the home's major systems.
Most buyers choose to get an inspection in addition to the required appraisal.
The appraisal fee is typically paid by the borrower and rolled into closing costs. USDA appraisals typically cost between $500 and $900, though the exact cost depends on the property's size, location, and local appraiser demand.
A USDA appraisal does more than confirm a price, it checks that the home meets the USDA's condition standards for safety and livability. Knowing the checklist ahead of time can help you spot potential red flags before the appraiser ever visits, and understand what to expect if a repair issue comes up along the way.
Connect with a USDA loan specialist if you have any questions on the USDA loan appraisal process or what to expect.
