February 14, 2018
A common question some newcomers to the home buying process ask; “Can I get a second FHA appraisal if I don’t agree with the first one?” FHA loan rules anticipate situations like these.
Some borrowers or sellers don’t share the opinion of the appraiser for a variety of reasons; some may simply wish to have the home appraised again to see if the results are more advantageous. But FHA loan rules don’t allow a second appraisal simply for the purpose of getting a different result.
HUD 4000.1, the FHA loan handbook, instructs the lender on how she may proceed with a second FHA appraisal request. For example, page 128 of HUD 4000.1 states clearly, “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.”
There are other rules in the same section that supplement the instructions above. In essence, the lender is (generally) only permitted to order a second appraisal under specific circumstances.
“A second appraisal may only be ordered if the Direct Endorsement (DE) underwriter (underwriter) determines the first appraisal is materially deficient and the Appraiser is unable or uncooperative in resolving the deficiency. The Mortgagee must fully document the deficiency and status of the appraisal in the mortgage file. The Mortgagee must pay for the second appraisal.”
What does the FHA consider to be a material deficiency? Much depends on whether the shortcomings of the original appraisal had a direct effect on the home’s value. These issues include (but may not be limited to):
-failure to report readily observable defects that impact the health and safety of the occupants and/or structural soundness of the house;
-reliance upon outdated or dissimilar comparable sales when more recent and/or comparable sales were available as of the effective date of the appraisal; and
-fraudulent statements or conclusions when the Appraiser had reason to know or should have known that such statements or conclusions compromise the integrity, accuracy and/or thoroughness of the appraisal submitted to the client.
Those guidelines are directly from HUD 4000.1, and are written specifically for situations where the original lender is trying to request a second appraisal. There are FHA loan guidelines for how to handles such requests when coming from a second lender in cases where the borrower started a home loan with one financial institution but switches to a different one.
We’ll examine those rules in another blog post.
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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