July 21, 2011
When a buyer finds a home to purchase using an FHA insured mortgage, the property must be appraised to establish the market value and make sure the home meets FHA standards before the loan can be approved.
Once the home has been appraised and approved for sale, the borrower and lender can work out an agreed closing date. But FHA appraisals have an expiration date–they don’t remain valid indefinitely due to housing market changes and other variables.
One common question about the appraisal process is whether the FHA allows an appraisal to be extended if it expires prior to the closing date. The short answer is that the appraisal may be extended for thirty days to allow the loan to close, “If a sales contract is signed or the borrower is approved for a loan prior to the appraisal expiration date”.
FHA rules state that loan approval becomes official “when the lender’s Direct Endorsement underwriter signs the FHA Loan Underwriting and Transmittal Summary, Form HUD-92900-LT. The loan must close within 150 days (120 day validity period for original report plus 30 day extension), if the appraisal has not been updated with an Appraisal Update Report”.
If the loan has been updated with that Appraisal Update Report, the loan is required to close within 240 days. The FHA places a restriction on these appraisal extensions–they can only be issued once, and cannot be used by a lender other than the one named in the original appraisal report, “unless the appraiser incorporates the original report by attachment rather than by reference per Advisory Opinion 3 of the USPAP.”
These rules are different for the sale of HUD-owned properties. According to FHA requirements, “a valid REO sales contract must be ratified within 120 days of the appraisal effective date, or the lender must order a new appraisal, or Appraisal Update Report (Mortgagee Letter 10-08). The 30 day extension is not allowed when the original appraisal is updated via an Appraisal Update Report.”
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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