December 1, 2016
If you aren’t sure whether you need a 2017 FHA appraisal, there may be a very simple answer depending on what kind of home loan or refinance loan you are seeking.
For all “forward mortgages” including new construction, proposed construction, or existing construction loans, an FHA appraisal will be required. New purchase loans or forward mortgages require the lender to establish the fair market value of the property to be purchased. That’s where the appraisal comes in.
An FHA appraisal establishes the fair market value and insures the home meets basic, minimum standards. The lender will calculate the loan amount based on either the fair market value of the home established in the 2017 FHA appraisal or the asking price of the home, whichever is lower.
For new purchase loans, the 2017 appraisal should never be taken as a home inspection or a guarantee from the FHA that the home is in “perfect” condition. The appraisal does not function as a stamp of approval from the FHA.
Appraisals are also required for all cash-out refinance loans or refinancing where money is due to the borrower such as an FHA HECM loan. In some cases the FHA has no requirement for an appraisal-this is true of the FHA Interest Rate Reduction Refinancing Loan (FHA IRRRL), but the lender may require one anyway.
The need for an appraisal for refinance loans includes the fact that housing markets and property values do change over time. In some cases the appraisal is needed to see how much the home’s value has increased, but in other cases where there are declining property values the reverse is true. The lender needs to know what the property’s current market value is regardless of the increase or decreases that may have occurred.
Basically, if you purchase a home or refinance one with an FHA refinance loan that results in cash back, you will be required to get a new appraisal.
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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