When Are Two Appraisals Required for FHA? (2024)

FAQs

When Are Two Appraisals Required for FHA? ›

The Federal Housing Administration (FHA) requires mandatory two appraisals for a home that a seller has purchased within 180 days and has resold it for a profit of 100% or more.

“A second appraisal may only be ordered if the Direct Endorsem*nt (DE) underwriter (underwriter) determines the first appraisal is materially deficient and the Appraiser is unable or uncooperative in resolving the deficiency.

The second appraisal must meet the FHA guidelines, including that: A different appraiser must complete the second appraisal. The appraisal is not paid for by the buyer. The lender must obtain a 12-month chain of title documenting resales.

You may need a second appraisal if you're getting a second mortgage right after closing on your purchase loan. Often second lien lenders won't use the original appraisal, especially if you're doing a home improvement second where the new appraisal must factor in potential improvements.

Checklist of FHA appraisal requirements

Must have an undamaged exterior, foundation and roof. Must have safe and reasonable property access. Must not contain loose wiring and exposed electrical systems. Must have all relevant utilities, including gas, electricity, water and sewage functioning properly.

The majority of lenders will not accept a transfer to appraisal for conventional financing. More times than not, you are required to pay for a second appraisal when changing lenders on a Conventional loan. The good news is money appraisers are set up with many AMCs (appraisal management companies).

The Mortgagee must fully document the deficiency and status of the appraisal in the mortgage file. The Mortgagee must pay for the second appraisal.”

Dispute the First or Order a Second Appraisal

Only the lender can insist upon a second appraisal, and typically only you as the buyer can make a request for another, which might or might not be honored. You can offer to split the cost of the second appraisal if you're the seller.

FHA Flipping Guidelines between 91-180 Days

For a house that is between 91 and 180 days, you can finance the home with an FHA loan under certain criteria. To qualify, the purchase price must be 100% or higher than what the seller paid for the property.

When you buy a “flipped” home, your lender must pay for a second appraisal of the home that includes an inside inspection. The lender cannot charge you for this second appraisal. Keep in mind that not all flips are subject to this requirement.

What is the FHA flipping rule? ›

What is the FHA Flipping Rule? The FHA flipping rule restricts the financing of a home with FHA insurance if the home was previously sold within the past 90 days. There are a few exceptions which would allow for FHA financing within the 90-day window.

If the consumer is applying for an HPML to buy a flipped property, an additional appraisal is required if the price reflected in the consumer's purchase agreement is a certain amount higher than the seller's acquisition price.

A lender may accept an appraisal transfer from a different lender. However, the lender delivering the loan to Freddie Mac makes all representations and warranties that the loan complies with the requirements of the Guide and related documents. Lender A must be named as client on the appraisal report.

Appraisal is lower than the offer: If the home appraises for less than the agreed-upon sale price, the lender won't approve the loan. In this situation, buyers and sellers need to come to a mutually beneficial solution that will hold the deal together — more on that later.

What won't pass an FHA inspection? The FHA is most concerned with issues that affect the safety and livability of the property. So if anything major happens that could affect the safety or health of an occupant, the appraisal is failed and the issues need to be rectified before the mortgage can close.

The appraisal must be valid on the date of the foreclosure sale. Appraisals are valid for 180 Days from the effective date of the appraisal report.

Generally speaking, FHA mortgages require a new appraisal for each new FHA loan case number. Once you have gotten an appraisal and the loan has closed, that appraisal is no longer valid for a new transaction.

The transferring lender is required to provide the new lender with the appraisal, if any, but is not required to provide any processing documents, if any. If processing documents are transferred, the fee for providing these documents is to be negotiated between the lenders.

Disagreement as to highest and best use can make two appraisals entirely different in their approach and the end number.

Can you switch lenders during underwriting? Switching lenders during underwriting has become increasingly common, but again may cause delays in the closing process and require a new appraisal and credit check, depending on the lender. Do your research and ensure that this is the right time for you to switch.

What happens if an appraisal comes in low with FHA? ›

Borrowers who find the appraised value of the home is lower than the asking price will either need to make up the difference in case, renegotiate with the seller, or walk away from the deal. The difference between the asking price and the sales price can't be rolled into the loan amount.

There are limitations--your new lender cannot request a second appraisal simply to change the amount of the home loan. That is an issue the rules address specifically in the context of transferring to a new lender. From HUD 4000.1: “The second Mortgagee may not request the Appraiser to re-address the appraisal.

The appraisal guarantee clause states that the buyer will make up the difference if the appraisal is lower than the accepted offer.

If the appraisal comes in lower than the purchase price, your lender will likely decrease the amount you can borrow. So you'll either have to pay more out of pocket or get the seller to lower their asking price.

If you're buying a home with a mortgage and the appraisal comes in lower than the price offer, you're going to need to put more money down. That's because the lender calculates the amount of your mortgage against the value of the property as a percentage, called the loan-to-value (LTV) ratio.

In California, a home appraisal contingency says that if the house appraises for less than the purchase price, the home buyer can back out of the deal. More importantly, this kind of clause allows the buyer to back out without sacrificing their earnest money deposit.

FHA Self-Sufficiency Test Checklist

This means that the maximum monthly mortgage payment is limited to 75% of the total rental income. This percentage must be at least enough to cover the mortgage payment known as PITI (Principal, Interest, Taxes, and Insurance).

The “12 month rule” in the FHA loan rule book (HUD 4000.1) says that depending on circ*mstances, the loan must be “downgraded to a refer” and “manually underwritten” where late or missed payments on a mortgage have occurred within the 12 months leading up to the loan application.

FHA Loan Gap in Employment Exceptions

The only rule is that the borrower must prove they were fully employed for six months before the FHA case number was first assigned. If you have a gap in employment, you may be required to show proof of full employment for two years prior to this gap.

Don't Assume You Did it “Right” the First Time. It is not unusual for an appraiser to be asked to appraise the same property on more than one occasion. Sometimes, it is a coincidence.

Can a lender change an appraisal value? ›

Changes to the Appraised Value

Any request for a change in the opinion of market value must be based on material and substantive issues and must not be made solely on the basis that the opinion of market value as indicated in the appraisal report does not support the proposed loan amount.

Lenders typically deny your loan if they see the home as a bad investment during the appraisal process. Although it's not a good feeling to have your loan denied, it might be the best case scenario – you don't want to purchase a home laden with problems in need of fixing.

The minimum down payment required for an FHA loan is 3.5% if you have a credit score of 580 or higher. If you have a credit score that's between 500 and 579, you'll have to put down at least 10% of the purchase price.

In its restrictions on resale, FHA states that "a property that is being resold 90 days or fewer following the seller's date of acquisition is not eligible for an FHA-insured mortgage.” Homes that were purchased between 90 and 180 days prior to the sale may be subject to a second appraisal which the borrower is not ...

Property flipping is a common practice in real estate. It involves buying a property and then reselling it for more money. Usually, when someone flips a property, he or she makes repairs and improvements beforehand. It can become illegal if the person falsely represents the condition and value of the property.

Timing Requirements – The “3/7/3 Rule”

The initial Truth in Lending Statement must be delivered to the consumer within 3 business days of the receipt of the loan application by the lender. The TILA statement is presumed to be delivered to the consumer 3 business days after it is mailed.

Step 2: Determine the Scope of Work

Determine the scope of work necessary to develop credible assignment results. Scope of work is defined by USPAP as the amount and type of information researched and the analysis applied in an assignment.

Under the ECOA Valuations Rule: When you receive a mortgage loan application, you have three business days to notify the applicant of the right to receive a copy of appraisals and other written valuations. You must promptly share copies of appraisals and other written valuations with the applicant.

Lenders might waive a new in-person appraisal because the home's market value was calculated so recently. The same can be said for refinancing a home. If little time has passed since the original appraisal, a lender may be willing to waive the in-person appraisal when refinancing.

If you or the borrower feel that the property has been undervalued and have additional comparable sales data or other information to provide, the DE underwriter or AMC can communicate directly with the appraiser to have the new information reviewed.

Is it okay to share a previous appraisal with the appraiser? ›

If you have a previous appraisal, I might suggest you use my Appraiser Info Sheet to share information appraisers tend to ask about, and then say nothing more than, “I have a previous appraisal if you want to see it.” If the appraiser doesn't want it, that's fine.

That said, most appraisals are in line with the selling price. On average, only one in 10 home appraisals come in low, but this can vary from region to region.

Another instance when waiving the appraisal contingency could be a good option is when the buyer could make a large down payment. This way, even if the appraisal is less than the offer price, the loan amount would only cover what the buyer still owes and the financial institution might still agree to the loan.

Making a Decision

Real estate expert opinion is generally against the idea of paying more than than a property's appraised value. Even if you make up the difference on an under-appraised property, you'll have a property worth less than what you paid.

Checklist of FHA appraisal requirements

Must have an undamaged exterior, foundation and roof. Must have safe and reasonable property access. Must not contain loose wiring and exposed electrical systems. Must have all relevant utilities, including gas, electricity, water and sewage functioning properly.

The Mortgagee must obtain appraisal field reviews on at least 10 percent of FHA-insured Mortgages selected for origination and underwriting QC review.

FHA mortgage appraisals are more rigorous than standard home appraisals. Whether you're looking at refinancing an FHA loan, buying a house with an FHA loan or even selling to someone who will be using an FHA loan, you'll want to understand what these appraisals entail.

Federal Housing Administration (FHA) Loan

An FHA appraisal is valid for 180 days unless it's updated, in which case they can last for up to a year.

Typically, you can expect closing on a house to take 30 – 45 days.

Does the FHA case number need to be on all pages of the appraisal? ›

The FHA case number may also appear in a similar place on other pages of the report, but it is not a requirement. The loan product type identifier (e.g., "703") is not part of the case number. Do not include “FHA #” or similar verbiage in front of the case number.

How Long Is The FHA Case Number Valid. If the FHA loan with a case number did not close in six months, the original FHA Case Number will be canceled.

You may need a second appraisal if you're getting a second mortgage right after closing on your purchase loan. Often second lien lenders won't use the original appraisal, especially if you're doing a home improvement second where the new appraisal must factor in potential improvements.

Can you still shop for a lender after a bid has been accepted? Yes, switching lenders at the last minute is possible in most cases, but it could tie up the sale or cause it to fall through, among other downsides.

The answer is yes. Lenders pull borrowers' credit at the beginning of the approval process, and then again just prior to closing.

It is possible to identify several common sources of error in performance appraisal systems. These include: (1) central tendency error, (2) strictness or leniency error, (3) halo effect, (4) recency error, and (5) personal biases.

Federal Housing Administration (FHA) Loan

An FHA appraisal is valid for 180 days unless it's updated, in which case they can last for up to a year.

Some sellers require what's known as an appraisal guarantee clause. This is common in a seller's market where buyers outnumber sellers and sellers can call the shots. The appraisal guarantee clause states that the buyer will make up the difference if the appraisal is lower than the accepted offer.

FHA mortgage appraisals are more rigorous than standard home appraisals. Whether you're looking at refinancing an FHA loan, buying a house with an FHA loan or even selling to someone who will be using an FHA loan, you'll want to understand what these appraisals entail.

Appraisal Waiver Eligibility

And finally, there are some loan types that simply don't allow for appraisal waivers no matter what. For instance, FHA loans almost always require an appraisal, as do loans involving certain types of down payment assistance.

What adds the most value to a home appraisal? ›