Ever since the FHA and HUD published the new FHA single-family mortgage loan rule book, HUD 4000.1, we've been examining important sections of the rules to see what current FHA mortgage loan policy is; FHA and HUD announced there would be no comparison document outlining the myriad of changes from the old guidelines to new and that it was the reader's responsibility to learn what current policy might be for any given FHA loan topic.
With that in mind we started reviewing HUD 4000.1 and discussing important issues. One such issue is the FHA's rules on appraisal expiration dates. FHA appraisals are generally valid for 120 days, but the rules in HUD 4000.1 add:
"The 120 Day validity period for an appraisal (see Ordering Appraisals) may be extended for 30 Days at the option of the Mortgagee if (1) the Mortgagee approved the Borrower or HUD issued the Firm Commitment before the expiration of the original appraisal; or (2) the Borrower signed a valid sales contract prior to the expiration date of the appraisal."
As you can see from the above, there are cases where an appraisal can be valid longer than 120 days. And what about cases where the apprasier needs to include an appraisal update? From HUD 4000.1:
"An appraisal update must be performed before the initial appraisal, with no extension, has expired. Where the initial appraisal is subsequently updated, the updated appraisal is valid for a period of 240 Days after the effective date of the initial appraisal report that is being updated."
Borrowers may wonder if the FHA allows an old appraisal under a different FHA case number to be used on the same property they might want to buy with an FHA loan. HUD 4000.1 states:
"The Mortgagee must order a new appraisal for each Mortgage or refinance case number assignment and may not reuse an appraisal that was performed under another case number, even if the prior appraisal is not yet more than 120 Days old."
There are other scenarios covered in HUD 4000.1 including what happens if a borrower changes lenders. Can he or she use the same appraisal from the previous lender? Can the new lender require a new appraisal on the property instead of using the old one?
"The second Mortgagee may not request the Appraiser to re-address the appraisal. If the second Mortgagee finds deficiencies in the appraisal, the Mortgagee must order a new appraisal. Where a Mortgagee uses an existing appraisal for a different Borrower, the Mortgagee must enter the new Borrowers information in FHAC. The Mortgagee must collect an appraisal fee from the new Borrower and refund the fee to the original Borrower."
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