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In the home loan industry it is sometimes necessary for a borrower to change from one financial institution to another after the home loan process has begun. When the borrower wants to switch lenders, is it possible to transfer an FHA appraisal to the new lender?

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FHA Appraisals When You Need to Change Lenders

February 23, 2022

FHA Appraisals When You Need to Change Lenders
It is not an everyday occurrence, but in the home loan industry it is sometimes necessary for a borrower to change from one financial institution to another after the home loan process has begun.

When the borrower wants to switch lenders, is it possible to transfer an FHA appraisal to the new lender? Appraisals cost money and it feels impractical to most borrowers to have to pay twice for the same service.

HUD 4000.1, the FHA Lender’s Handbook, says the following about these issues:

“In cases where a Borrower has switched Mortgagees, the first Mortgagee must, at the Borrowers request, transfer the appraisal to the second Mortgagee within five business days.”

The phrase, “at the borrower’s request” is key--FHA loan rules say the appraiser is not automatically required to perform the transfer.

“The Appraiser is not required to provide the appraisal to the new Mortgagee. The client name on the appraisal does not need to reflect the new Mortgagee. If the original Mortgagee has not been reimbursed for the cost of the appraisal, the Mortgagee is not required to transfer the appraisal until it is reimbursed.”

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. If the second Mortgagee finds deficiencies in the appraisal, the Mortgagee must order a new appraisal.”

And what about when the lender is interested in using an existing appraisal, but the borrower has changed? FHA loan rules indicate that the lender “must enter the new Borrowers information in FHAC. The Mortgagee must collect an appraisal fee from the new Borrower and refund the fee to the original Borrower.”

And we should also note the other portion of the rules in this area--the lender is instructed, “If a Case Transfer is involved, the new Mortgagee must enter the Borrowers information in FHAC. The new Mortgagee must collect an appraisal fee from the Borrower, and send the fee to the original Mortgagee, who, in turn, must refund the fee to the original Borrower.”

Appraisals are an important part of the home loan process and it is important to remember that no matter what the circumstances surrounding the appraisal, it is a service you pay for to get the appraisal done.

It is not a situation where you are paying for a specific outcome--if the appraisal goes in a different way than you expect you still owe the appraiser for the services rendered. And it is also very important to remember that the appraisal is a tool for the lender to determine the fair value of the home and not to give you a seal of approval that the home is defect-free. No appraisal can do that.

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