September 15, 2014
A reader asks, “How is the home value assessed for a 203K, fixer-upper loan? For instance if we bought a home for $200,000, and also borrowed $30,000 in repair funds to improve the home, would the home value continue to be assessed at $200,000 or could an appraisal actually be used in this case? I have read that home value with FHA PMI purposes will only be assessed at the LOWER of an appraisal and the original loan amount.”
For questions like these, terminology is important when it comes to arriving at the answer needed. For example, there is a big difference between an assessment and an appraisal–and appraisal is done by an FHA-assigned professional to determine the value of the property to be purchased or financed by an FHA mortgage loan.
An assessment is carried out by the local Assessor’s office and the results are used in a different context. We can’t answer questions about how a local assessor might carry out his or her work, but where FHA appraisals are concerned, the following applies to the 203(k) appraisal issue:
FHA appraisals on 203(k) loans are done using the as-is condition of the home AND with the completed repairs or rehab finished in order to arrive at the final value. According to the FHA’s 2039(k) Handbook, once the results of the two appraisals are finished, here’s what happens next:
“2-3. VALUATION ANALYSIS AND REVIEW. Using the two appraisals, the Review Appraiser or DE Underwriter determines the as-is value plus cost of rehabilitation and completes the value after rehabilitation for mortgage insurance purposes. Complete Form HUD 92700, 203(k) Maximum Mortgage Worksheet (Appendix 11), to determine market value of the
property after rehabilitation and the maximum mortgage amount to be shown on the Conditional Commitment/Statement of Appraised Value (Form HUD 92800.5B). If HUD issues the Conditional Commitment, the lender should provide the Field Office with sufficient information to complete the Form HUD 92700.”
When it comes to the rules for calculating the FHA’s Mortgage Insurance Premium, the FHA official site states that the calculations will be made using the average outstanding balance of the loan. This information is found at:
http://portal.hud.gov/hudportal/HUD?src=/program_offices/housing/comp/premiums/sfpcalc
Do you have questions about FHA home 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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