July 16, 2013
Borrowers who apply for FHA home loans to buy their dream home have to have that property appraised as a part of the loan process. The appraisal helps insure the property lives up to FHA minimum standards and establishes the fair market value of the property.
When it’s time to refinance, depending on the lender and the type of refinance loan you may be required to get a new appraisal–FHA cash-out refinancing, for example. In order to determine the loan amount, the current market value of the property is required.
But what about refinancing that has no cash back to the borrower and is only intended for a lower interest rate or monthly payment?
The FHA refinance loan program known as Streamline Refinancing, for example, which does just that. A Streamline loan is available for existing FHA mortgages only. It uses the borrowers original credit information in most cases to process the new mortgage. According to FHA loan rules in HUD 4155.1 Chapter Six, Section C, “FHA does not require an appraisal on a streamline refinance. These transactions can be made with or without an appraisal.”
That means that in cases where the lender also does not require an appraisal (the lender is free to do so but many choose not to) there is no need to anticipate the appraisal fee or compliance inspection fee. Chapter Six states, “FHA does not require repairs to be completed on streamline refinances with appraisals, with the exception of lead-based paint repairs. However, the lender may require completion of repairs as a condition of the loan.”
In some cases where the lender does require an appraisal for a Streamline loan, that appraisal may come back with a value lower than expected depending on circumstances and the housing market. In such cases the FHA does have rules which address this issue. “If an appraisal has been performed on a property, and the appraised value is such that the borrower would be better advised to proceed as if no appraisal had been made, then the
• appraisal may be ignored and not used, and
• lender must notate this decision on the HUD-92900-LT, FHA Loan Underwriting and Transmittal Summary.”
So while there is no FHA required appraisal, if the lender requires one he or she does not have to use that appraisal if it hurts the borrower’s chances of securing the FHA Streamline Refinance loan.
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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