Why Are Two Appraisals Required?
If you are a home buyer and are in the mortgage approval process, there are times when the mortgage lender will require two appraisals. The Federal Housing Administration 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 needs to come from two totally different FHA approved/certified appraisal companies.
Property Home Inspection Might Be Required
The mortgage lender may require a home inspection as well for those homes sold within the 180 day time frame. All renovations that required permits such as 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 and do gut rehabs on them to resell them at a profit. HUD just wants to make sure that the sale, house flipping, is legitimate and 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 home buyers who get a 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 and 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 but also has minimum requirements concerning the condition of the property in regards to safety and security. A home that has broken glass, peeling pain, non working electrical, plumbing, HVAC and other safety and security issues will not pass FHA appraisal inspection.
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 and might also require a home inspection. The second appraisal cannot be paid by the home buyer. The second appraisal is normally paid for by the mortgage lender.
By Gustan Cho