September 5, 2017
What happens to my FHA appraisal if I switch lenders? It does happen-sometimes a borrower starts with one company but decides to switch lenders. There are many reasons why this could happen; a better set of terms and conditions offered elsewhere, a change of mind, etc.
It is definitely possible to switch participating FHA lenders before the transaction reaches a certain point, but what if the appraisal has already happened? FHA loan rules found in HUD 4000.1 anticipate such issues, and addresses them starting on page 127, which begins by saying that the lender is required to transfer the appraisal to the new lender within five business days.
In cases where a Borrower has switched Mortgagees, the first Mortgagee must, at the Borrower’s request, transfer the appraisal to the second Mortgagee within five business days.
However, the important thing to remember about this requirement is that it is NOT automatic and must be done at the borrower’s request. One of the most important things to remember when switching lenders is to “officially” make the request. Once that is done, FHA loan rules have more to say on the procedure-including the fact that the appraiser is not required under FHA loan rules to do anything to facilitate 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.”
The new lender is not permitted to request a re-evaluation of the appraisal. If the new lender finds problems with the original, a new FHA appraisal must be ordered, but with the following restrictions:
“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.” Furthermore, the second Mortgagee may not request the Appraiser to re-address the appraisal. If the new lender “finds deficiencies in the appraisal”, according to HUD 4000.1, the new lender will need to order a new appraisal.
Second appraisals are possible in situations where the lender is required to comply with FHA loan rules regarding “flipped” homes:
“The Mortgagee may order a second appraisal for Mortgages that are in accordance with requirements on Property Flipping” which generally apply if the property being sold was purchased between 91 and 180 days prior and has a resale price above a certain value. HUD 4000.1 states:
“A Mortgagee must obtain a second appraisal by another Appraiser if:
-the resale date of a Property is between 91 and 180 Days following the acquisition of the Property by the seller; and
-the resale price is 100 percent or more over the price paid by the seller to acquire the Property.
If the second appraisal supports a value of the Property that is more than 5 percent lower than the value of the first appraisal, the lower value must be used as the Property Value in determining the Adjusted Value.”
Ask your loan officer how these rules may apply to your transaction.
Bruce Reichstein has spent over three decades as an experienced FHA and VA home loan mortgage banker and underwriter where he was responsible for funding “Billions” in government backed mortgage loans. He is the Managing Editor for FHANewsblog.com where he educates homeowners on the specific guidelines for obtaining FHA guaranteed home loans.
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