June 1, 2012
FHA home loans require an appraisal to establish fair market value and insure the property meets minimum standards. But many borrowers want to know how long the appraisal has until it expires and whether or not an appraisal can be re-used.
There are several reasons why this question arises; a borrower may decide not to close on the deal and another FHA loan applicant may decide to purchase the same property, for example. Or a borrower and seller may take longer than expected to close the deal.
What does the FHA say about these issues?
According to the FHA’s property and appraisal requirements found on FHA.gov, “Effective for all case numbers assigned on or after January 1, 2010 the validity period for all appraisals on existing, proposed, and under construction properties, including HUD REO appraisals that have an effective date of on or after April 1, 2010, will be 120 days.”
When it comes to re-using an FHA appraisal, the rules are clear. An FHA appraisal cannot be reused for any reason after the loan has closed. That would include FHA refinancing loans that require an appraisal–an area the rules specifically address. “For example, an appraisal used for the purchase of a property cannot be used again for a subsequent refinance, even if the appraisal is within the 120 day validity period. A new appraisal is required for each refinance transaction requiring an appraisal.”
Does the borrower have any recourse in cases where the loan has not closed yet, but the appraisal is nearing its expiration date? A part of the FHA rules on appraisals called “Extension of Validity Period” has the answers:
“The original appraisal may be extended by 30 days to allow for the approval of the borrower and closing the loan provided the borrower signs a valid sales contract or is approved prior to the expiration of the appraisal.”
The rules also say there’s a limit to how long the FHA appraisal may remain valid. “For case numbers assigned on or after February 15, 2010, the original appraisal report may only be updated one time via the completion of Appraisal Update Report (Fannie Mae 1004D/Freddie Mac 442), thereby capping the overall validity period for an appraisal being updated at 240 days.” The update is permitted to be carried out by the original appraiser, “provided they are currently in good standing on the FHA Appraiser Roster.”
Got questions on FHA loan rules? Ask us in the comments section.
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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