FHA Loans & Appraisal Rules: A Reader Question

A reader asks, "I have been told by my realtor and the lender that an appraisal on a house I own will be on record for 180 days. They said that the appraised value will be on record and no other FHA appraisal can be made during this 180 day period. Is there a master list that other lenders and appraisers cross reference during this six month period? My reading of your blog indicates that if another FHA buyer makes an offer on my property. a different appraisal would need to be performed."

HUD 4000.1 does indeed contain language that leads one to believe that a new appraisal may be required. On page 120, we find the following:

"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."

However, a few pages later (on page 123) we learn:

"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. If a Case Transfer is involved, the new Mortgagee must enter the Borrowers information in FHAC. The new Mortgagee must collect an appraisal fee from the Borrower, and send the fee to the original Mortgagee, who, in turn, must refund the fee to the original Borrower."

Based strictly on the reading of these two sections of HUD 4000.1, it's easy to see that there may be circumstances where the borrower is able to use an existing appraisal for a different borrower. Lender standards, state law, and other factors may affect how or whether this is possible, but in any case the borrower who winds up using the appraisal for a given property is responsible for paying for that service rendered.

FHA loans in general don't permit "second appraisals" when the desire is simply to increase the market value of the property. Exceptions are made when there are deficiencies in the original appraisal. From HUD 4000.1:

"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. The Mortgagee must fully document the deficiency and status of the appraisal in the mortgage file. The Mortgagee must pay for the second appraisal. Material deficiencies on appraisals are those deficiencies that have a direct impact on value and marketability."

Borrowers who have further questions on this should discuss their needs with the loan officer to see what may be possible in a given circumstance. The appraisal fee is paid for by the borrower regardless of the outcome of the appraisal, so it's important to remember that this is a charge for services rendered rather than a fee paid to obtain a specific result.