April 18, 2018
In our previous blog post, we discussed borrowers who need to know FHA home loan rules for switching lenders, and when a new appraisal might be permitted under such circumstances. Borrowers do have the right to change lenders, the same way they have the right to refinance a mortgage loan using the same lender or a new one.
If you need an FHA One Time Close construction loan, appraisal issues are quite different. The FHA will require inspections of the finished property to insure it complies with FHA standards and state/local code, but obviously the approach to a new construction home isn’t the same as an actual appraisal to determine the fair market value of existing construction properties.
But for those who need a new purchase loan on an existing home, a FHA cash-out refi loan, or any other appraisal-required home loan, there is always a chance for disappointment in cases where the appraisal comes in lower than expected. The appraisal can affect the amount of the loan and the amount of money back to the borrower in cases where the cash out refinance loan is at stake.
But it’s not possible to simply order a new appraisal because the adjusted value of the home isn’t calculated as expected. FHA home loan rules anticipate situations where a borrower or other party to the loan may wish to do just that; HUD 4000.1 instructs the lender how and when a new appraisal may be ordered.
That said, is it possible for an FHA loan applicant to sidestep FHA loan appraisal rules by finding a new financial institution and transferring the loan?
If the motivation to switch lenders revolves around a second chance at an appraisal for the purpose getting a better result from the appraisal, the answer is a definite no.
When an FHA mortgage is transferred from one financial institution to another, the following must apply according to the FHA loan official site:
- 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.
If you have concerns about the appraisal process, or the results of a specific appraisal, you may wish to discuss those issues with a loan officer or a housing counselor prior to committing to a new home loan. You can call the FHA directly at 1-800 CALL FHA to request a referral to a local, HUD-approved housing counselor.
Borrowers who want to increase the value of a property may wish to consider applying for an FHA Rehab loan (FHA 203(k) loans are for rehab/repairs) which can be applied for as a new purchase loan or a refinance mortgage.
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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