Are you a first-time home buyer? Are you looking into your FHA home loan options and not sure what the appraisal process is all about?
The FHA appraisal is a tool for the lender to determine the home’s fair market value and a way to make sure a property meets MINIMUM standards.
No matter what you might hear (and some mistakenly call the appraisal an “inspection”) the appraisal will not tell you the true condition of the home.
Even the FHA and HUD themselves warn borrowers to pay for the optional home inspection (which is technically not a requirement, but then again, neither is test-driving your car before you buy it).
And what should borrowers know about the FHA appraisal process?
The appraisal’s most important feature for some borrowers is the fact that you cannot get a “do-over” appraisal because you or the seller disagree with the valuation of the home.
HUD 4000.1, the FHA Single Family Home Loan handbook, 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.”
When is a do-over appraisal or second FHA appraisal permitted? According to HUD 4000.1, only if there are important problems (the term “material deficiencies” is used in the rules) with the original appraisal.
“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 is considered a material deficiency? Things that have a “direct impact on value and marketability” of the home. Material deficiencies include, but are not limited to the following:
- A failure to report readily observable defects that impact the health and safety of the occupants and/or structural soundness of the house;
- Reliance on “outdated or dissimilar comparable sales” when more recent and/or comparable sales were available as of the effective date of the appraisal;
- 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.
In any case, both appraisals must be maintained and the lender may be required to get additional information or perform other steps that may slow down the mortgage loan approval or closing processes. State law and other requirements may affect how a second appraisal is to be carried out.