June 15, 2018
When is an appraisal required for an FHA home loan? This important question often comes up when borrowers want to refinance a home using an FHA refinance loan such as cash-out refinance, FHA Streamline Refinance, or even when the borrower wants to apply for an FHA Reverse Mortgage.
Appraisals are required for most FHA loan transactions-you will always have to pay for an appraisal for an FHA forward mortgage, which is the kind of loan you will apply for when purchasing a new home.
Appraisals are required for both existing construction loans and FHA One-Time Close construction loans, though the process will vary for construction loans due to the nature of the transaction. Appraisals will also be required for FHA Rehab loans.
The appraisal is intended to establish the fair market value of the property and to insure the home meets FHA minimum requirements. Appraisals may include a comparison to similar properties in the area. These properties are known as “comparables” and the value of these homes may affect the valuation of your home.
For construction loans, the issues and timing of the appraisal will vary from existing construction loans, but no matter what kind of property is being appraised this process is not intended as a home inspection nor should it be considered to be one by the borrower.
Appraisals are also required for refinance loans with certain exceptions. Any transaction that results in cash back to the borrower such as an FHA Reverse Mortgage or HECM loan, or FHA Cash-Out Refinance loans, will require a new appraisal no matter the age of the loan or how long ago an appraisal happened previously.
The appraisal in these cases is intended to help the lender determine the loan amount, but if the appraiser does come back with repairs or corrections, such issues would be required to be addressed as a condition of loan approval.
The home must have a “remaining economic life” that lasts the duration of the mortgage loan in order to be eligible for an FHA refinance.
There is one situation with no FHA-required appraisal; the FHA Streamline Refinance loan. These loans can use the original appraisal under FHA loan rules to process the loan.
The lender is not giving cash back to the borrower and the purpose of this FHA refi is to get the borrower out of an adjustable rate mortgage, into a lower mortgage payment, or interest rate.
That does not mean the lender won’t require a new appraisal anyway, but the rules of this type of FHA mortgage do not require the lender to do so; the standards of your financial institution will apply in such cases.
Ask your loan officer about the appraisal process and the requirements of that financial institution if you aren’t sure how FHA appraisal requirements may apply to your transaction.
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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