Can I get a second FHA appraisal if I don’t agree with the first one? This is a common question, normally asked if the appraised value of the home comes in differently than a buyer or seller expects it to.
FHA loan rules don’t allow a borrower to be forced into purchasing a home where the appraised value is lower than the asking price, so it’s an issue that can definitely affect a home loan transaction depending on what the borrower wishes to do in such cases.
Can I Order A Second FHA Appraisal?
FHA appraisals are ordered by the lender, so the borrower cannot initiate any second appraisal requests. In any case, the lender is restricted on how and when a second appraisal may be ordered.
Specific Restrictions On Ordering Second Appraisals
FHA loan rules in HUD 4000.1 instruct the lender, “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 Can A Second Appraisal Be Ordered By The Lender?
HUD 4000.1 states that another appraisal may be possible in cases where there are serious issues with the original appraisal. Page 128 states:
“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.”
Second Appraisals Ordered By A New Lender
The rules quoted above are for situations where the original lender is considering a second appraisal. But what about situations where the borrower has switched lenders? The new lender may be justified in ordering a new appraisal if the following circumstances apply according to HUD 4000.1:
- The first appraisal contains material deficiencies as determined by the underwriter for the second Mortgagee;
- The Appraiser performing the first appraisal is prohibited from performing appraisals for the second Mortgagee;
- The first Mortgagee fails to provide a copy of the appraisal to the second Mortgagee in a timely manner, and the failure would cause a delay in closing and harm to the Borrower, including loss of interest rate lock, violation of purchase contract deadline, occurrence of foreclosure proceedings and imposition of late fees.
Note that the protection of the borrower is an important consideration in the last portion of those guidelines. Ordering second appraisals may require additional paperwork, supporting documentation, and the lender is required to maintain copies of both appraisals for future reference.
It is important to note that ordering an update to an existing appraisal is not viewed in the same manner by the FHA as requesting a second appraisal. Ordering an appraisal update is governed by the following in HUD 4000.1:
“The Mortgagee may only order an update if (1) it is a Mortgagee listed as an Intended User of the original appraisal or (2) it has received permission from the original client and the Appraiser. The Appraiser incorporates the original report being updated by attachment…”
Check with your loan officer if you aren’t sure how these rules may affect your transaction for an FHA mortgage or refinance loan.