What are the rules for FHA appraisal transfer? There are times when a borrower wants to switch lenders, and there may be other circumstances that may lead to the question of transferring an existing FHA appraisal.
FHA Appraisals And Borrowers Who Switch Lenders
FHA loan rules in HUD 4000.1 directly address the question of what happens to the FHA appraisal if the borrower changes her mind and decides to use a different lender. “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.”
Notice that the FHA loan rules here say “at the borrower’s request”. The transfer of the appraisal is not automatic, and the FHA appraiser is not required “to provide the appraisal to the new Mortgagee” according to HUD 4000.1.
Some fine details of this process are addressed in the same section. “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.”
State law and lender standards may also affect this process.
FHA Appraisals And The New Lender
In cases where the borrower is working with a second lender (having switched to the new lender from the original one) HUD 4000.1 states, “The second Mortgagee may not request the Appraiser to re-address the appraisal. If the second Mortgagee finds deficiencies in the appraisal, the Mortgagee must order a new appraisal.”
This rule seems to be designed to prevent borrowers from swapping lenders just to get a more favorable appraisal, but that is a speculation and not specifically mentioned in the FHA loan handbook. Furthermore, in cases where a different lender “inherits” an appraisal, the following FHA loan guidelines also apply:
“Where a Mortgagee uses an existing appraisal for a different Borrower, the Mortgagee must enter the new Borrower’s information in FHA Connection (FHAC). The Mortgagee must collect an appraisal fee from the new Borrower and refund the fee to the original Borrower. If a Case Transfer is involved, the new Mortgagee must enter the Borrower’s information in FHAC. The new Mortgagee must collect an appraisal fee from the Borrower, and send the fee to the original Mortgagee, who, in turn, must refund the fee to the original Borrower.”
A lender must also comply with the following rules that govern requesting a second appraisal, where applicable:
“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.”
Speak to a loan officer if you aren’t sure how these rules might affect your transaction.