Understanding DVA & CVA Financing

When veterans seek to purchase a home, two loan programs often come into play: the Department of Veterans Affairs (DVA) loan and the Certificate of Reasonable Value (CRV). While intertwined, they represent distinct aspects of the home-buying process.

The DVA Loan Guarantee

The DVA loan is not a loan directly issued by the Department of Veterans Affairs. Instead, it’s a loan guarantee offered by the VA to private lenders like banks and credit unions. This guarantee significantly reduces the lender’s risk, making them more willing to offer favorable terms to eligible veterans, active-duty service members, and surviving spouses. Key benefits of a DVA loan include:

No Down Payment (in most cases): A significant advantage, especially for first-time homebuyers.
No Private Mortgage Insurance (PMI): Unlike conventional loans with low down payments, DVA loans don’t require PMI, saving borrowers money each month.
Competitive Interest Rates: Due to the VA guarantee, lenders typically offer lower interest rates.
Flexible Credit Requirements: The VA is often more lenient with credit scores compared to conventional lenders.
Assumability: Under certain conditions, a DVA loan can be assumed by another eligible veteran, making it an attractive feature for sellers.

To be eligible for a DVA loan, veterans must meet specific service requirements and obtain a Certificate of Eligibility (COE). This certificate confirms their eligibility based on their military service record.

The Certificate of Reasonable Value (CRV)

The CRV is an independent appraisal conducted by a VA-assigned appraiser. It determines the fair market value of the property being purchased. This appraisal is crucial because it sets the maximum loan amount the VA will guarantee. The purpose of the CRV is twofold:

Protecting the Veteran: Ensures the veteran doesn’t overpay for the property.
Protecting the VA: Limits the VA’s liability should the borrower default on the loan.

The CRV considers various factors, including comparable sales, property condition, and neighborhood characteristics. The appraised value must meet or exceed the agreed-upon purchase price for the loan to proceed.

If the CRV is lower than the purchase price, the veteran has several options:

Renegotiate the Purchase Price: Attempt to lower the price with the seller.
Pay the Difference in Cash: Cover the gap between the CRV and the purchase price out-of-pocket.
Request a Reconsideration of Value (ROV): Provide additional documentation to the appraiser to support a higher valuation.
Cancel the Purchase Agreement: If other options fail, the veteran can typically withdraw from the purchase agreement without penalty, due to the VA escape clause.

DVA Loan vs. CRV: The Key Difference

Essentially, the DVA loan is the financing program itself, while the CRV is a crucial step in the loan process that determines the property’s fair market value and protects both the veteran and the VA. They work together to ensure responsible and affordable homeownership for veterans. Understanding both is essential for navigating the DVA loan process successfully.