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FHA Mortgage Loans: Second Appraisals

June 29, 2023

FHA loans

If you or the seller don’t agree with the results of the appraisal, is it possible to get a second appraisal and a reconsideration of value of the home?

FHA loan rules specifically prohibit ordering a second appraisal just because one party or the other is hoping for a different result.

HUD 4000.1, the FHA Single-Family Lender’s Handbook, states the lender 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.”

FHA loan rules note the lender is permitted to order a second appraisal “for Mortgages that are in accordance with requirements on Property Flipping”.

But what circumstances permit a second appraisal?

HUD 4000.1 says that the original mortgagee or lender is allowed to order a second appraisal in cases where the lender “determines the first appraisal is materially deficient, and the Appraiser is unable or uncooperative in resolving the deficiency.”

The lender would be required to fully document the deficiency and status of the appraisal, and it’s the lender’s responsibility to pay for the new appraisal, not the borrower’s.

What’s considered a deficiency? According to FHA loan rules:

“Material deficiencies on appraisals are those deficiencies that have a direct impact on value and marketability.” Material deficiencies include, but are not limited to:

  • Failure to report readily observable defects that impact the health and safety of the occupants and/or structural soundness of the house;
  • Reliance upon outdated or dissimilar comparable sales when more recent and/or comparable sales were available as of the effective date of the appraisal; and
  • 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.”

A second appraisal may also be ordered by a second mortgagee. In such cases, the following applies from HUD 4000.1:

A second appraisal may only be ordered by the second Mortgagee under the following limited circumstances:

  • 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; or
  • 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.”

Ask a participating lender about these issues if you are unclear, or call the FHA directly at their toll-free number, 1-800-CALL FHA.

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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