The FHA flip rule and the requirement for a second appraisal are related to certain restrictions on financing recently sold or flipped properties. Under the FHA flip rule, if a property is being resold within 90 days of its acquisition by the seller, the lender may require a second appraisal.
You may need a second appraisal if you're getting a second mortgage right after closing on your purchase loan. Often second lien lenders won't use the original appraisal, especially if you're doing a home improvement second where the new appraisal must factor in potential improvements.
The second appraiser can't be the same as the first one. The buyer need not pay the appraisal costs. The lender must obtain a 12-month chain of title. The lender considers the lower value if the second appraisal value is 5% or higher than the first.
Market research portion of an FHA appraisal
They must cite several things including: Two comparable sales closed within 90 days of the appraisal. Three recently closed sales within the property subdivision. Two active listings or pending sales.
By definition, an appraisal is an opinion of value, not fact. While a property's sale price and construction cost are provable quantities, its value is an opinion of desirability to defined groups. So, appraisal conclusions, even though supported by facts, can vary among appraisers.
Ask yourself if the buyer would ever have substituted the subject. The answer may be enlightening as to why the appraisal is so different from yours. Next, look at the sales comparison adjustments. Look first for big adjustments in the sales comparison grid.
Your best bet is to hire a third independent appraiser to review both reports and conclude their own opinion of value. Even if you pay $500 - $700 you can use that to try and force the seller to drop their price. If they won't you may need to walk away and find another house.
Although the FHA appraisal guidelines have developed a reputation for being unnecessarily strict, the standards have been relaxed. Today, most FHA appraisal requirements are easy to meet or relate to major hazards most home buyers and homeowners shouldn't ignore under any circumstances.
The overall structure of the property must be in good enough condition to keep its occupants safe. This means severe structural damage, leakage, dampness, decay or termite damage can cause the property to fail inspection. In such a case, repairs must be made in order for the FHA loan to move forward.
Part 2 of the FHA flip rule requires that any contract for an FHA buyer dated between July 1st-September 28th (91-180 days from the seller's original purchase of the property), would require the lender to obtain two separate appraisals.
A second appraisal is required for property resold within 91-180 days after acquisition and the new sales price meets or exceeds the resale price percentage threshold. What cases are not subject to property flipping rules? For further details, see HUD Handbook 4000.1.
The only rule is that the borrower must prove they were fully employed for six months before the FHA case number was first assigned. If you have a gap in employment, you may be required to show proof of full employment for two years prior to this gap.
If you plan to purchase a flipped home with an FHA loan, you must abide by the FHA 90-day flipping rule. This rule states that a person selling a flipped home must own the home for more than 90 days before home buyers can purchase the property.
If your appraised value is lower than the agreed upon sales price, you'll have to make up the difference in cash, or cancel the deal. There's no reason to panic if your appraisal comes in lower than you expect it to, though.
If you've made an offer on a home and your lender's appraisal values the property at less than you've bid, the lender won't approve the full mortgage amount even if you qualify for it. In order for the purchase to go through, you may need to supply extra cash.
After the appraiser determines the property's value, the underwriter will compare the appraised amount to the mortgage loan amount. Your underwriter may suspend the application if the home is valued less than the mortgage amount.
Whether you're interested in a listing or touring an open house, here's a list of things buyers can look for that may be considered red flags to an FHA appraiser: Missing handrails. Cracked windows. Termite damage.
Unfortunately, sellers often perceive the FHA loan approval process as risky because of the FHA's relatively lenient financial requirements and stricter appraisal and property standards.
Common Safety, Soundness And Security Issues
Here are a few common issues that would disqualify a property from an FHA loan. Electrical: The electrical system must be up to code and provide adequate lighting. Heating: The heating systems must follow the local code and provide a comfortable temperature.
The safety checks that are done as part of an FHA appraisal have to do with whether the property is move-in ready. If there are exposed floorboards or the utilities don't work, that can be a health and safety issue. We'll get into some FHA-specific standards a little bit below.
They check for the structures quality, the interior and exterior condition, the state of fixtures and systems and the condition of the lot. Market research: Appraisers research selling prices for comparable homes by reviewing homes that closed in the same general area and typically closed during the past six months.
Federal Housing Administration (FHA) loans take a bit longer to close due to additional documentation requirements. They take an average of 62 days to close.
In any event the contracts that we use contains an appraisal contingency which calls for the sale price to be at the agreed upon contract price or the buyer can request a price reduction if the appraisal is lower. The seller may not ask for a price increase based upon the appraisal.
If the appraised value is well below the sale price, you may be better off not buying the home. A home can fail an appraisal if it doesn't meet the standards for the loan. In this case, the lender may decide that problems with the home's condition are too extensive to repair and may reject the home.
You might want a second appraisal if you have reason to believe the original appraiser misjudged your home's value. To back up your request for a second appraisal, you could gather more accurate comps or point out flaws or omissions in the first appraiser's report.