HUD Updates FHA Appraisal Guidelines
FHA loan appraisal guidelines include a maximum age for an appraisal. Once that maximum age is reached the appraisal has expired and is no longer valid.
Sometimes there are delays in the home loan process that can put the borrower in danger of facing an expired appraisal, but in such cases, FHA rules have permitted an extension of the appraisal validity period for 30 additional days.
In some circumstances, an appraisal update may be permitted but that update must typically be accomplished before the original appraisal expires according to HUD 4000.1.
But going forward, under the updated appraisal policy, FHA expanded the appraisal validity period, which the HUD official site says will reduce the burden of applying appraisal updates and helps the agency bring the FHA loan program’s initial appraisal validity period closer in line with the Department of Veterans Affairs VA loan “Notice of Value validity period” for VA mortgages.
The mortgagee letter announcing these changes reminds us that the original period was 120 days, but the updated FHA appraisal validity period is now 180 days from the date of the appraisal report. FHA appraisal update validity period is extended from 240 days to a full year. There is no longer an option for the 30-day extension mentioned above.
These changes apply to both FHA forward mortgages and Home Equity Conversion Mortgages (HECM). Talk to your loan officer if you aren’t sure how these changes may affect your transaction, where applicable.
And when discussing this, some may wonder about FHA loan policies regarding document age; how do these rules apply where appraisals are concerned? The FHA and HUD have a history of enforcing such standards.
HUD 4000.1 instructs the lender, “Documents used in the origination and underwriting of a Mortgage may not be more than 120 days old at the Disbursement Date”. But updated sections of HUD 4000.1 now exclude appraisals from these requirements.
The FHA Handbook has been changed to reflect FHA loan policy that documents for the loan can’t be older than 120 days. The revised guideline says appraisals are "subject to separate validity period requirements."
And there are some other exceptions in the same section. Did you know that some documents are considered “evergreen” and don’t expire at all? HUD 4000.1 says, “Documents whose validity for underwriting purposes is not affected by the passage of time, such as divorce decrees or tax returns, may be more than 120 days old at the Disbursement Date.”
For purposes of starting the clock on documents that do expire, “Day One” is the day after the date on the document or the “issue date” of the document, whichever is later.” These new rules apply to all FHA case numbers assigned on or after 1 June 2022.
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