July 14, 2015
For borrowers examining their refinance loan options, it’s important to know what kind of refinance loan you want so you can plan ahead for expenses that might be related to the loan such as appraisals and up-front closing costs.
Some borrowers assume that certain types of refinancing never require an appraisal, but this is not true–FHA loan rules for Streamline Refinancing, for example, say that no appraisal is required by the FHA but the lender may ask for one regardless.
This surprises some applicants, and we get a fair number of inquiries asking if certain lender policies (including “appraisal required” streamline loans) are legitimate. “My understanding is that the FHA rules don’t require an appraisal for this refinance loan. My lender says I will need one for my streamline refinance loan anyway. Is this true?”
FHA loan rules say lenders may request an appraisal even for streamline refinancing. This isn’t the only area where lender discretion is allowed; lenders can also require a new credit check even for an FHA streamline loan.
In fact, credit checks may be required for Streamline Refinancing by the FHA (as well as the lender) where the amount of the monthly mortgage payments increases by 20% or more. This can occur when certain add-ons to the loan are present such as discount points, energy efficient upgrades, etc.
The “optional” appraisal and credit check situations are unique to refinance loans that feature no cash back to the borrower. Any FHA refinance loan transaction that allows cash back to the borrower would require both a new credit check and a new appraisal. The lender needs to insure the borrower can indeed afford the new loan, and determine the fair market value of the home since the time of the original appraisal.
So you may find the lender wanting an appraisal even where no FHA requirement exists, due to policies at that financial institution.
Do you have questions about FHA loans? 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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