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FHA Appraisals: When Are They Required?

July 10, 2024

FHA Mortgage Loan

When is an FHA appraisal required? For any FHA purchase loan, you will be expected to pay for an FHA appraisal, even if it is an after-improvements approach for renovation refinance loans or similar options. We examine the other situations where an assessment may be needed below.

FHA Streamline Refinance

An FHA streamline refinance loan does not require an FHA appraisal. These refinance options are meant to provide a tangible benefit to the borrower through a lower monthly payment, a better interest rate, or switching to a fixed-rate loan from an adjustable-rate mortgage.

Your participating lender may require an appraisal, which is permitted under FHA loan rules. However, no FHA requirements for appraisals exist for streamline refi loans in typical cases.

FHA Reverse Mortgage Refinances

FHA reverse mortgages, also known as FHA Home Equity Conversion Mortgages or FHA HECM loans, require a new appraisal for the initial application and for refinancing.

Cash Out Refinance Loans

An appraisal is always required. Your house may have grown in value in the meantime and could be worth more now than when it was initially appraised for. Much depends on circumstances, but as a rule, you WANT an appraisal for a cash-out refi in typical cases.

FHA No Cash Out Refinance Loans

Appraisals are required for these refinance loans even though no cash goes back to the borrower. the same is true of FHA simple refinances and related options. Plan to pay for an appraisal for all of these loan options.

FHA 203(k) and FHA 203(h) Rehabilitation Refi Loans

Do you want to refinance a home and repair it simultaneously? These FHA loans require an appraisal, but not in the same way as purchase loans.

With an FHA rehab refinance under the 203(k) program, the appraisal is reserved for after the renovations. Your appraisal reflects the “as repaired” value of the home rather than what it was worth before the project started.

The FHA 203(h) rehabilitation loan is offered to qualifying applicants in federal disaster areas. If you need to renovate or replace a home damaged by the disaster, this is an important loan option to consider.

These are offered as purchase loans or refinances. FHA loan rules require appraisals for these loans. This type of loan requires “as-is” appraisals so the lender knows the home meets FHA requirements and the property’s value does not exceed FHA loan limits for that area.

The Bottom Line

FHA loan requirements may change over time due to legislation, modifications to the FHA loan program, etc. Talk to a participating FHA lender in cases where you don’t know which appraisal rules may be applicable in your circumstances.

Joe Wallace - Staff Writer

By Joe Wallace

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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