February 14, 2018
Do you know what the FHA loan appraisal rules are for switching lenders? It’s true that not all borrowers will experience a situation where a change in lenders is needed, but a borrower is free to do so under FHA loan rules.
In such cases an appraisal transfer may be required, and in others the new lender may wish to order a second appraisal. Is the new lender allowed to do so?
According to HUD 4000.1, the FHA loan handbook, the lender is prevented from ordering a second appraisal (new lender or not) just to get a different result from the process. But there are circumstances where the new appraisal might be necessary and permitted.
HUD 4000.1 states that for the original lender, “A second appraisal may only be ordered if the Direct Endorsement (DE) underwriter (underwriter) determines the first appraisal is materially deficient and the Appraiser is unable or uncooperative in resolving the deficiency.”
Furthermore, the participating FHA lender, “must fully document the deficiency and status of the appraisal in the mortgage file. The Mortgagee must pay for the second appraisal.”
Note that the lender is not permitted to charge the new appraisal to the borrower. The rules for the second lender who “inherits” the new loan are similar:
“A second appraisal may only be ordered by the second Mortgagee under the following limited circumstances:
the first appraisal contains material deficiencies as determined by the underwriter for the second Mortgagee;
-the Appraiser performing the first appraisal is prohibited from performing appraisals for the second Mortgagee; or
-the first Mortgagee fails to provide a copy of the appraisal to the second Mortgagee in a timely manner, and the failure would cause a delay in closing and harm to the Borrower, including loss of interest rate lock, violation of purchase contract deadline, occurrence of foreclosure proceedings and imposition of late fees.”
It’s easy to see from the above that the second lender’s ability to order another FHA appraisal depends in part on how cooperative the original lender is in transferring the loan.
Borrowers who are contemplating a change of lender should discuss their situation with the new loan officer to see what may be required in transferring and/or how to avoid delays in the transfer due to issues like these. Lender requirements, state law, and other factors may also apply in cases like these.
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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