FHA Loan Articles
Expiration Dates on FHA AppraisalsWhen it's time to get serious on an FHA insured mortgage and make an offer to buy a home, the property must be appraised by an FHA fee appraiser to establish the market value and make sure the home meets FHA standards. The loan can't be approved or closed upon before this appraisal happens.
When the property gets appraised and approved for sale, the FHA borrower, seller and lender can discuss a closing date. In most cases when the closing date is set and the agreements have been made, the end of the purchase process is in sight.
But FHA appraisals have an expiration date -- they don't remain valid indefinitely due to housing market changes and other variables. What happens if the closing date is set but the FHA appraisal expires beforehand?
FHA rules anticipate such situations--an appraisal may be extended for thirty days to allow the loan to close, "If a sales contract is signed or the borrower is approved for a loan prior to the appraisal expiration date" according to the FHA official site.
FHA loan approval becomes official "when the lender's Direct Endorsement underwriter signs the FHA Loan Underwriting and Transmittal Summary, Form HUD-92900-LT." According to the rules, once the approval is official, "The loan must close within 150 days (120 day validity period for original report plus 30 day extension), if the appraisal has not been updated with an Appraisal Update Report".
If an Appraisal Update Report has been submitted, the loan must close within 240 days.
The FHA only permits appraisal extensions once. They are also restricted in use--they can't be transferred or used by a lender not named in the original appraisal report, "unless the appraiser incorporates the original report by attachment rather than by reference per Advisory Opinion 3 of the USPAP."
When it comes to the sale of HUD owned homes, the rules change. FHA requirements state "a valid REO sales contract must be ratified within 120 days of the appraisal effective date, or the lender must order a new appraisal, or Appraisal Update Report (Mortgagee Letter 10-08). The 30 day extension is not allowed when the original appraisal is updated via an Appraisal Update Report."