March 30, 2020
The FHA and HUD have modified certain FHA appraisal requirements in response to the coronavirus outbreak and the need for social distancing.
Since the outbreak of coronavirus and the worldwide pandemic that followed, government agencies began issuing policies to accommodate the need to prevent gatherings of people which potentially spreads the virus farther and wider.
In the home loan industry, many are at risk including appraisers who must (under normal conditions) enter the homes of strangers and potentially expose themselves to infection.
At the end of March, the FHA and HUD issued a press release announcing changes in FHA appraisal policy to address the needs to get appraisals done without exposing people to additional risks. That announcement including a set of temporary modifications to FHA appraisal requirements for single-family home loans.
According to the press release at HUD.gov, changes include but may not be limited to the following:
- “Most” Single Family forward and FHA Reverse Mortgage (for purchase) transactions may use an optional Exterior-Only or Desktop-Only Appraisal;
- Traditional FHA Reverse Mortgages (also known as FHA Home Equity Conversion Mortgages), HECM-to-HECM refinances, Rate and Term Refinances and Simple Refinances are also permitted to use an optional Exterior-Only;
- According to HUD.gov, “all appraisals made in connection with the servicing of FHA’s forward or reverse mortgage portfolios” may use either the Exterior-Only or Desktop-Only Appraisal inspection scope of work.
It is important to note that the FHA and HUD announced no changes in this area for FHA Streamline Refinance loans, FHA Cash-Out refinances, 203(k) Rehabilitation mortgages, and “certain purchase transactions”.
Guidelines for exterior-only appraisals during this time include:
“Appraiser will observe the Property and Improvements from the street. The Appraisal will be completed “AS IS” unless Minimum Property Requirements (MPR) related deficiencies are observed from the street or otherwise known.”
The amended guidelines also state, “The Appraiser may utilize extraordinary assumptions when necessary. No sketch, interior photos or rear exterior photographs are required.”
These rule changes are not made to last; they expire May 17, 2020 unless otherwise extended by the FHA and HUD.
Many borrowers mistakenly assume an FHA appraisal is an “inspection” of the home. FHA, HUD, and mortgage lenders all warn house hunters not to rely on the appraisal alone.
FHA publications warn house hunters that an appraisal cannot possibly uncover all the issues that may be present in a house for sale. That is the job of the optional, but crucial home inspection. A borrower must arrange and pay for a home inspection themselves.
If you don’t have a home inspection, there is no recourse available to you via the FHA/HUD or your lender should the home have problems or defects that turn up only after you have moved in. For your protection, get a home inspection.
Bruce Reichstein has spent over three decades as an experienced FHA and VA home loan mortgage banker and underwriter where he was responsible for funding “Billions” in government backed mortgage loans. He is the Managing Editor for FHANewsblog.com where he educates homeowners on the specific guidelines for obtaining FHA guaranteed home loans.
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