July 14, 2022
The Department of Housing and Urban Development official site contains an FHA Mortgagee Letter published on July 12, 2022, which announces an important update to FHA appraisal policy.
FHA loan rules as published in HUD 4000.1, include a maximum age for an appraisal. If an appraisal is about to expire, FHA rules permit an extension of the appraisal validity period for 30 additional days. In some cases, an appraisal update may be permitted but that update must typically be accomplished before the original appraisal expires.
Now, FHA appraisal guidelines have been revised to expand the appraisal validity period, which the FHA and HUD say will reduce “financial burdens” of getting appraisal updates.
The changes are also meant to help the agency “more closely align” the FHA loan program’s initial appraisal validity period with the Department of Veterans Affairs VA loan “Notice of Value validity period”.
The mortgagee letter outlines a variety of changes to FHA policy where appraisal validity is concerned. The original period was 120 days, the new FHA appraisal validity period is increased to 180 days “from the effective date of the appraisal report”.
Essentially, this change removes a step in the process and makes all affected FHA appraisals more consistent.
Another change is that the FHA appraisal update validity period is now extended from 240 days to a full year. It also removes the option for the 30-day extension mentioned above.
These changes affect FHA forward mortgages and Home Equity Conversion Mortgages (HECM) alike.
Some might wonder how the FHA loan policies about document age apply where appraisals are concerned. HUD 4000.1 says that in general, “Documents used in the origination and underwriting of a Mortgage may not be more than 120 Days old at the Disbursement Date”. But the UPDATED HUD 4000.1 now includes that line but modified it to exclude appraisals from the requirement.
The new guidelines read that documents for the loan can’t be older than 120 days, “…except for appraisals, which are subject to separate validity period requirements.”
The same section also states, “Documents whose validity for underwriting purposes is not affected by the passage of time, such as divorce decrees or tax returns, may be more than 120 Days old at the Disbursement Date.”
How does HUD 4000.1 instruct lenders to begin the countdown on these timelines? “For purposes of counting Days for periods provided in this Handbook 4000.1, Day one is the Day after the effective or issue date of the document, whichever is later.”
The new policies are effective for all FHA mortgages with FHA case numbers assigned on or after 1 June 2022. For loan servicing and foreclosure avoidance purposes, the applicable sections of the new policy for appraisals are effective on or after July 12, 2022.
Ask your participating FHA lender if you have questions about how this policy might affect your transaction.