November 13, 2019

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New Housing Appraisal Rules? Not So Fast, FHA Loans

FHA Home loan appraisal rules

If you haven’t paid attention to recent headlines in the mortgage finance sector, you may not be aware that starting October 9, 2019, some house sales priced at or below $400,000 no longer require an appraisal.

That news has some house hunters and home sellers jumping for joy. At least at first.

Since the mid 1990s, appraisals have not been required for each and every home sale. Homes priced at or below $250 thousand may or may not have required an appraisal (more on that below), but over time, the numbers have shown that home prices have gone up significantly since then.

Hence the move to change the appraisal threshold. The FDIC, in partnership with two other government agencies issued the proposal to increase the appraisal limit, the rule was published for comment, and the final rule was approved on October 9, 2019.

But the loans affected by this new rule are NOT the kinds of mortgage loans backed by the federal government: FHA loans, VA mortgages, Fannie Mae, and Freedie Mac Loans are all exempt from this new rule and must continue to require appraisals on homes for purchase or refinance as directed by each agency’s loan program guidelines.

Mortgage loans that are affected by this rule and don’t require the appraisals until the $400k threshold is exceeded are loans in a lender’s portfolio, or loans that are destined to be sold on a secondary market.

According to some sources, those homes are responsible for about 40% of home sales in the U.S.

What can an FHA borrower take away from all this?

We have long written about the importance of a borrower paying for the optional home inspection rather than attempting to use the appraisal report to determine if the home has defects.

Some borrowers foolishly sidestep getting a home inspection because they believe the appraisal is enough of a look at the home to make sure it is basically defect-free.

This is the wrong thing to do. Borrowers who do not get a home inspection could never get the read condition of the home simply from the appraisal.

And now with this new rule in place essentially telling lenders the appraisal is not needed, how should borrowers interpret that in light of the need for a home inspection?

FHA loans will, as the rules are currently written, usually require an appraisal for new purchase loans or refinance loans. If you are an FHA borrower, that appraisal is still mandatory in spite of the new rules discussed here.

But the appraisal will not protect you from hidden defects or damage in the home. A home inspection (NOT the appraisal) is designed to detect such things.

Joe Wallace - Staff Writer

By Joe Wallace

October 10, 2019

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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