August 17, 2017

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FHA Appraisal Update: A Reader Question

What’s the difference between an FHA appraisal update and ordering a second appraisal? That’s an important point when it comes to answering the reader question that came in via our comments section this week:

“My question is this: Can a lender order a new appraisal on a property that has already been assigned an FHA case number (previous buyer offer fell thru)? Appraisal is less than 120 days old. Since the initial appraisal the seller has installed a new roof, WDO repairs and other minor repairs. Would this give the new lender a reason to order a new appraisal?”

FHA loan rules in HUD 4000.1 make a distinction between an FHA appraisal update and a “second appraisal”. HUD 4000.1 says the following about a second lender ordering a new appraisal for a property that already has one:

“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.”

An updated appraisal may be possible, according to HUD 4000.1:

“The Mortgagee may only order an update if (1) it is a Mortgagee listed as an Intended User of the original appraisal or (2) it has received permission from the original client and the Appraiser. The Appraiser incorporates the original report being updated by attachment rather than by reference per Advisory Opinion 3 of the USPAP.”

According to HUD 4000.1, the lender is permitted to use an update of appraisal only in the following circumstances:

-it is performed by the FHA Appraiser who performed the original appraisal, who is currently in good standing on the FHA Appraiser Roster;
-the Property has not declined in value;
-the building improvements that contribute value to the Property can be observed from the street or a public way;
-the exterior inspection of the Property reveals no deficiencies or other significant changes;
-the update of appraisal was ordered by the Mortgagee and completed by the Appraiser prior to the expiration of the initial 120-Day period; and the original appraisal report was not previously updated.

It’s best to speak to the loan officer about this situation to see what may apply in a borrower’s individual circumstances. It’s also a good idea to inquire about FHA appraisal fees and what may be required for the borrower to pay in such cases.

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