Appraisal Review Process By Lenders During Mortgage Process

This BLOG On Appraisal Review Process By Lenders During Mortgage Process Was UPDATED On January 27th, 2019

what are Appraisal Review Process By Lenders 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
  • 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

what are Cases When Appraisal Review Underwriter Lowers Value Of Appraisal

One of the biggest reason where 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 which 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
  • On 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

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

what are Second Home Appraisal

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

what are 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
  • 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

What are Solutions To Home Appraisal Issues

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 comparable sales
  • This often presents an issue with the validity of the home appraisal

Unique Properties:

  • It is often a bad idea buying 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

Home Buyers 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 faster response. Or email us at gcho@gustancho.com.

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