When Two Appraisals Are Required By Mortgage Lenders
This article is about when two appraisals are required by mortgage lenders.
The reason more than one appraisal is required is that the lender does not feel comfortable with the security of the property. Lenders are not real estate investors. They have no interest in holding the property in their portfolio. Lenders want to just get paid on their note. Mortgage companies are holding the property as security. In the event the borrower defaults, they want to liquidate it as quickly as possible and get their money back. Under normal circumstances, one appraisal is just fine. However, if the property is out of the ordinary, a second appraisal may be required. In this article, we will cover the following topics:
- Why lenders require a second home appraisal.
- High-End homes with little to no comparable sales normally require a second home appraisal
- Unique homes require a second home appraisal
The bottom line of lenders requiring a second appraisal is because they want to protect themselves. Lenders want to make sure they want to protect their collateral. They want to make sure their interests are protected.
Why Lenders Require A Second Appraisal
For homebuyers who are in the mortgage approval process, there are times when the mortgage lender will require two appraisals.
The Federal Housing Administration (FHA) requires mandatory two appraisals for a home that a seller has purchased within 180 days and has resold it for a profit of 100% or more. This mandatory two appraisals requirement has been implemented as a safeguard to house flipping and make sure there is no mortgage fraud involved.
It is totally legal for a home seller to have purchased a foreclosure or REO for $100,000, invest $50,000 renovating it, and resell it for $200,000. However, if the sale is done within a 180 day window time frame and the gross profit is at 100% or greater, the home buyer is required to have two FHA appraisals done.
The two FHA appraisals need to come from two totally different FHA-approved/certified appraisal companies.
Property Home Inspection Might Be Required
Lenders may require a home inspection as well for those homes sold within the 180-day time frame.
All renovations that required permits such as the following:
- room additions or structural changes of the home
- proper permits from the city’s building department will be required as well
Property flipping has been under major scrutiny since the real estate and mortgage collapse of 2008:
However, there are home developers who purchase REOs and foreclosure at a discount. These real estate investors are professional property fixes and flippers. They gut, renovate, and resell them for a profit.
HUD just wants to make sure that the sale, house flipping, is legitimate. HUD wants to make sure there is no mortgage fraud involved where it involves no work done to the home and the home buyer is a straw buyer.
Other Cases Where Two Appraisals Are Required
For those homebuyers who get an FHA 203k loan, FHA will require two appraisals. But the appraisal can be from the same appraiser and appraisal management company.
With FHA 203k loans, two appraisals are ordered at the same time:
- An as-is appraisal and as-complete appraisal
- The as-is appraisal is the appraisal that will be given a value prior to the renovation of the work
The as-is appraisal is the appraisal value that will be rendered after the completion of the renovations.
FHA Two Appraisal Requirement
The Federal Housing Administration has strict FHA appraisal guidelines which include not just the value of the subject property. It also has minimum requirements concerning the condition of the property in regards to safety and security.
A home that has broken glass, peeling paint, non-working electrical, plumbing, HVAC, and other safety and security issues will not pass the FHA appraisal inspection.
Two Appraisals On Fix Rehabbed And Flipped Properties
Homes that have been rehabbed and bought and sold by a home developer within a 180 day time period and the new sales price is over 100% of the original sales price bought by the seller requires two appraisals. The property might also require a home inspection.
- The second appraisal cannot be paid by the home buyer
- It is normally paid for by the mortgage lender or the home seller
Home Buyers who need to qualify for a mortgage with a national direct lender with no mortgage overlays can contact us at Gustan Cho Associates at 262-716-8151 or text us for a faster response. Or email us at [email protected] The team at Gustan Cho Associates are available 7 days a week, evenings, weekends, and holidays.