July 19, 2016
A reader asks, “I am selling a home that has a septic system that does not meet local requirements but has been grandfathered. The septic system has been inspected and is in good working condition. The appraiser said that because the age of the septic (greater than 30 years) that it would need to be replaced.”
“We bit the bullet and decided to replace the septic but under new requirements we are going to also have to replace our water well to fit the new septic on our property. The combined cost of replacing both system will approximately $15k. Should I ask the buyers to try a different lender or is this going to be an issue with all lenders/appraisers?”
FHA loan rules governing this issue can be found on page 124 of HUD 4000.1. The loan rules permit a borrower to change lenders when purchasing a home with an FHA mortgage, but there are restrictions on what happens with the original appraisal.
In general, regardless of whether or not a borrower is changing lenders, ordering a second appraisal can’t be done simply to adjust the appraised value of the home or to try to get deficiencies or corrections overruled. Here’s what HUD 4000.1 says about ordering second appraisals:
“The Mortgagee is prohibited from ordering an additional appraisal to achieve an increase in value for the Property and/or the elimination or reduction of deficiencies and/or repairs required. The Mortgagee may order a second appraisal for Mortgages that are in accordance with requirements on Property Flipping.”
With regard to ordering a second appraisal when the loan is transferred to a different lender, HUD 4000.1 states:
“A second appraisal may only be ordered by the second Mortgagee under the following limited circumstances:
–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.”
In short, you can change lenders, but once the appraisal is performed under the FHA loan case number assigned to the transaction, that appraisal stands unless one of the above conditions is met
Joe Wallace has been specializing in military and personal finance topics since 1995. His work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and a member of the Air Force Public Affairs Alumni Association. He was Managing editor for www.valoans.com for (8) years and is currently the Associate Editor for FHANewsblog.com.
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