Appraisal Review By Underwriter During the Mortgage Process

In this article, we will cover and discuss appraisal review by underwriter during the mortgage process. When mortgage borrowers apply for a residential mortgage loan, a home appraisal is required and is part of the mortgage loan process. There are no upfront fees to apply for a mortgage loan with the exception of the appraisal cost.

How The Home Appraisal Is Ordered and Paid

How The Home Appraisal Is Ordered and Paid

The appraisal needs to be paid by the homebuyer applying for a home purchase mortgage loan or a homeowner applying for a refinance loan. The appraisal is ordered by the mortgage lender through an appraisal management company. The appraisal management company also referred to as the AMC,  then contracts with a local appraisal company. A mortgage loan officer is not allowed to speak to the appraiser due to new mortgage rules and regulations. It is a felony to try to influence an appraiser to enhance the home’s value. The appraiser is dispatched to the subject property and inspects and evaluates the subject property by comparing it to nearby comparable properties.

The Importance of Comparable Sales That Is Nearby The Subject Property

Comparable properties need to be similar in lot size, square footage, bedroom count, bathroom count, and amenities such as pool, patio, pond, and the structure of the building. The appraiser compares the subject property to similar and like properties within a one-mile radius that has recently been sold within the past six months.

How Many Comparable Sales Are Required in the Appraisal Report?

The appraiser normally compares the subject property to three similar comparable properties. The appraiser then completes his appraisal report and turns it in to his local appraisal company which then turns it in. The appraisal management company determines the validity of the appraisal and signs off. The appraisal management company has a senior member review the appraisal report and if everything is in line, signs off on it. It then gets submitted to the mortgage lender where the home appraisal review by underwriter will be done for quality control purposes. In this article, we will cover and discuss Appraisal Review By Underwriter In Mortgage Loan Process.

Appraisal Review By The Underwriter

Appraisal Review By The Underwriter

Once the appraisal is submitted to the lender, it goes to the appraisal review department of the lender. The appraiser review by the underwriter is started and the underwriter will then scrutinize the subject appraisal and make sure they agree with the appraisal report. In most cases, the appraisal review by underwriter signs off on the home appraisal. However, there are cases where the appraisal review by underwriter does not like the home appraisal even though the appraisal came in at the target value

Reasons Why Second Appraisal Is Required After Appraisal Review

Although the borrower has paid for an appraisal and the appraisal did come in at the target value, the lender’s appraisal review department can turn down the appraisal and deny the loan. Reasons, why the appraisal review department voids an appraisal, are numerous. One of the main reason why the appraisal review department denies the appraisal report is because they do not agree with the comparable the appraiser has used as comparable.

Reasons Why Mortgage Lenders Can Require A Second Appraisal

Another reason why the appraisal review department does not like to accept the appraisal is that the comparable are not too recent and might be older than a year old. Other reasons why the appraisal review department can also not accept the appraisal is because the subject property is a non-conforming property and the adjustments to the subject property are greater than or less than 25% of the market value of the home. Another common reason why the appraisal review department rejects the appraisal is that comparable sales are too far away from the subject property. Some appraisers use homes that are 3 or more miles away from the subject property and the lender does not like to accept comparable properties greater than a mile.

Solutions When Appraisal Review Voids Appraisal Report

Solutions When Appraisal Review Voids Appraisal Report

Unfortunately, when the lender appraisal review department does not accept the subject appraisal, there are very limited solutions. Worst case scenario, the borrower will still be approved for the property but not the property so the borrower needs to purchase a different property. Other times, the appraisal review department might give a discounted value of the subject property and the loan will be made off the discounted value and for anything higher, the borrower needs to come up with the difference.

What Happens If The Appraisal Review Mortgage Underwriter Is Not Comfortable With The Home Appraisal?

Other solutions might be that the lender might require a field review appraisal which is a second opinion from a different appraiser. The bottom line to this blog is that make sure that your new home purchase has plenty of nearby sales comparable. The biggest home on the block or other so-called unique properties might run into an appraisal review nightmare. Viewers with any questions on home appraisals, please contact us for more information at 1-262-716-8151 or text us for faster response. Or email us at [email protected]

What Happens During The Appraisal Review Process By Underwriter During Mortgage Process

Part of the mortgage approval process is to have an appraisal completed by a licensed appraiser. Once the appraisal is completed, the mortgage lender will scrutinize the appraisal. The home is the only collateral the lender has so the home appraisal goes into an appraisal review process. Just because an FHA appraisal or Conventional appraisal has been completed and signed off by the home appraiser and appraisal management company does not mean that the appraisal will be accepted by the lender.

Lender’s Internal Appraisal Review By Underwriter During the Mortgage Process

Lender's Internal Appraisal Review By Underwriter During the Mortgage Process

Every lender has its own appraisal review process. Some lenders are extremely lenient while others are more strict. Some lenders will just accept the appraisal that has been submitted and will not scrutinize the appraisal as other lenders. There are other lenders who will go over an appraisal with a fine-tooth comb. Most buyers and sellers feel relieved once they get an appraisal back with the value they are expecting. In the majority of cases, the appraisal review process is nothing but a formality. However, there are cases where the appraisal review underwriter might lower the value of the actual appraisal due to many reasons.

Cases When Appraisal Review Underwriter Lowers Value Of Appraisal

One of the biggest reasons why a lender lowers the value of the actual appraisal during the appraisal review process is that the appraisal review underwriter does not feel comfortable. Comps are recent sales of similar and like properties that are nearby the subject property. There are cases where when a home buyer purchases a unique property. The appraiser cannot get comps that are nearby or comps that are equivalent to the subject property. If this is the case, the appraiser needs to go outside the area and make positive or negative adjustments. In cases like these, the appraisal review underwriter may not agree with the value of the appraisal. The underwriter comes up with his or her own market value.

Case Scenario of Appraisal Review By Underwriter During the Mortgage Process

For example, here is a scenario where a home appraisal may alert a mortgage underwriter. If the appraised value of a subject property came in at the purchase price of $365,000. The comps used were over a one-mile square mile versus half a mile. Comparable sales were older than six months.

Second Home Appraisal Requirement During The Appraisal Review By Underwriter During the Mortgage Process

Second Home Appraisal Requirement During The Appraisal Review By Underwriter During the Mortgage Process

There are cases where a lender may need to order a second appraisal. The home buyer cannot be charged the cost of a second home appraisal. The appraisal review underwriter might order a second appraisal or a field review appraisal. A field review appraisal is a second appraisal where the appraiser does a drive-by and is equivalent to a second opinion. If the field review or the second appraisal comes in the same value as the original appraisal, then the original appraisal stands. If the second appraisal comes in lower than the original appraisal, then it’s up to the appraisal review underwriter whether to use the lower appraisal or the average of the two.

Value Being Questioned By Underwriter

Getting a low appraisal is different than an appraisal review underwriter lowering the value of an actual appraisal. If the subject property gets a lower market value than the purchase price, the home buyer can request an appraisal rebuttal from the appraisal management company through their lender. However, if the appraisal comes in at the same value as the purchase price but the appraisal review underwriter has a problem with it, then a second appraisal or field review appraisal needs to be ordered.

What Can Appraisal Review By Underwriter Require To Accept The Appraisal

The appraisal review underwriter can request additional comps from the original appraiser to justify his or her value as well too. All in all, just because an appraisal is completed does not mean that the lender will automatically accept its value. Most of the time, the lender will take the value. But there are cases where the appraisal gets scrutinized during the appraisal review process.

Solutions To Appraisal Issues And Appraisal Review Process

Solutions To Appraisal Issues And Appraisal Review Process

There are instances where home buyers run into home appraisal issues. Here are some examples and case scenarios:

  • Value Comes In Lower Than Purchase Price:
  • When value comes in lower than the purchase price, sellers normally lower the purchase price to the appraised value
  • If sellers are not willing to come down on price, then buyers need to put additional money
  • This is because lenders will only go by appraised home value
  • Appraisal Rebuttal is not often successful but doable
  • Strong comparable sales need to be provided to win an appraisal rebuttal

Property With No Recent Comparable Sale

Lenders want comparable sales that are very close to the subject property. There are instances where the appraiser cannot get close to comparable sales. This often presents an issue with the validity of the home appraisal

Unique Properties

It is often a bad idea to buy a white elephant. It is not a good idea to buy the largest and most expensive home in the area. Buyers of unique homes often have issues with comparable sales. Homebuyers and/or homeowners who need to qualify for home loans with a direct lender with no lender overlays on government and conventional loans can contact Gustan Cho Associates at 262-716-8151 or text us for a faster response. Or email us at [email protected]

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