More on FHA Loan Appraisal Rules for a Transferred FHA Loan

March 28, 2018

In our last article, we discussed a situation some applying for FHA home loans find themselves in-these borrowers need to know the FHA home loan rules for switching lenders and when a new appraisal might be permitted in that situation.

Borrowers who need an FHA cash-out refi loan or other appraisal-required type of mortgage that allows cash back to the borrower may be disappointed if the appraisal comes in lower than they hoped. The lower adjusted value of the property means less cash back to the borrower at closing time.

FHA loan rules anticipate the desire to request a second appraisal in order to get a more favorable outcome, and HUD 4000.1 has specific rules about when and how a second appraisal may be ordered. In our last article we covered the rules for when the borrower is working with her original lender; second appraisals are not permitted solely to get a better dollar value assigned to the home.

Now let’s examine the FHA home loan rules for ordering second appraisals when the borrower has changed lenders. Can an FHA loan applicant sidestep the second appraisal rules by finding a new financial institution and transferring the loan?

The short answer is, if you’re hoping to get a second chance at an appraisal for the purpose of increasing the market value of the property, the answer is no. HUD 4000.1 instructs the lender that when an FHA mortgage is transferred from one financial institution to another, the following must apply:

• The first appraisal contains material deficiencies as determined by the underwriter for the second Mortgagee;
• The Appraiser performing the first appraisal is prohibited from performing appraisals for the second Mortgagee; or
• The first Mortgagee fails to provide a copy of the appraisal to the second Mortgagee in a timely manner, and the failure would cause a delay in closing and harm to the Borrower, including loss of interest rate lock, violation of purchase contract deadline, occurrence of foreclosure proceedings and imposition of late fees.

Furthermore, any second appraisal must be kept on file with the original appraisal-the first one must be retained as per HUD 4000.1.

Borrowers who are worried about the appraised value of the property may wish to discuss their FHA home loan options with a participating lender to see which loan might be more appropriate for their needs.

Homeowners who wish to increase the value of their homes may wish to explore the FHA rehab loan option, which is available as a refinance loan as well as a new purchase option.

Those who need cash back on their refinance loan should ask their lender whether, in the loan officer’s opinion based on market trends and current property values, if now is a good time to apply for cash-out refinancing or if it might be better to wait until property values pick up in the mid-term depending on market conditions.

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