When Two Appraisals Are Required By Mortgage Lenders

This article will cover and discuss when mortgage lenders require two appraisals. In general, only one appraisal is required—however, there are cases where lenders require two appraisals. Two appraisals are required because 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 get paid on their notes. The following paragraphs will cover why mortgage lenders require two appraisals.  Felix Nicolas, III explains who orders the home appraisal:

Typically, the lender is responsible for scheduling the appraisal. This is because the lender wants to ensure that the property is worth the amount they are lending. The lender will hire a licensed and certified appraiser to perform appraisals in the state where the property is located.

In summary, appraisals are critical in making an informed home-buying decision. They provide buyers with an unbiased, professional evaluation of a property’s value and help ensure they pay a fair price. As such, buyers should carefully review and use the appraisal report to inform their decision-making process. Doing so can avoid overpaying for a property and protect themselves and their lender from potential losses.

The Importance of Home Appraisals

What Should Buyers Do with an Appraisal Report? Buyers should carefully review the appraisal report to ensure they are comfortable with the property’s value. If the property is overvalued, buyers may want to negotiate a lower price or reconsider purchasing. If the appraisal report identifies any property issues, buyers may request that the seller make repairs or offer a credit to cover the costs.

Who Schedules the Appraisal? Typically, the lender is responsible for scheduling the appraisal. This is because the lender wants to ensure that the property is worth the amount they are lending. However, the buyer may also schedule an inspection if they are paying cash or want to ensure they make a sound investment. Regardless of who prepares the review, it is vital to ensure that the appraiser is licensed and experienced.

Why Would a Home Need Two Appraisals?

Mortgage companies are holding the property as security. If the borrower defaults, they want to liquidate it quickly and get their money back. Under normal circumstances, one appraisal is just fine. However, a second appraisal may be required if the property is out of the ordinary. In this article, we will cover the following topics:

• Why lenders require two appraisals.
• High-End homes with little to no comparable sales normally require two appraisals.
• Unique homes require two appraisals.

The appraisal is ordered once the borrower has completed the loan application and provided the lender with the property details. While the lender is responsible for scheduling the appraisal, neither the lender nor the borrower can speak with the appraiser during the appraisal process. The appraiser must remain unbiased in assessing the property’s value. Any attempt to influence the appraiser’s opinion could result in an inaccurate appraisal, which could have serious consequences for all parties involved.

What Happens If Two Appraisals Are Different?

The bottom line of lenders requiring a second appraisal is that 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.
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Why Mortgage Lenders Require Two Appraisals

Another frequently asked question at Gustan Cho Associates is why would a mortgage underwriter request two appraisals. Sometimes, the mortgage lender will require two appraisals in the approval process. HUD, the parent of FHA, requires two FHA appraisals on property flips, explains John Strange of Gustan Cho Associates:

The Federal Housing Administration (FHA)requires two mandatory 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 appraisal requirement has been implemented as a safeguard to house flipping and ensure no mortgage fraud is involved.

Can My Lender, My Realtor, or Myself Speak with the Appraiser? When a property is being sold or refinanced, an appraisal is necessary. The appraisal provides an unbiased estimate of the property’s value, which the lender uses to determine the loan amount and the buyer to decide whether or not to proceed with the purchase. However, who schedules the appraisal and who can speak with the appraiser is often a question that arises.

What Triggers a Second Appraisal From The Mortgage Underwriter?

It is legal for a home seller to have purchased a foreclosure or REO for $100,000, invested $50,000, renovated it, and resold it for $200,000. However, the home buyer must have two FHA appraisals done if the sale is made within a 180-day window and the gross profit is at 100% or greater. The two FHA appraisals must come from two different FHA-approved/certified appraisal companies. Alex Carlucci of Gustan Cho Associates explains the importance of getting a solid home appraisal from an experienced appraiser:

Appraisals are a critical step in the home-buying process. While they can be time-consuming, the information they provide is invaluable. Buyers can use the appraisal report to make informed decisions about their purchase, while lenders can use it to determine property value.

If you should decide to buy, before you begin looking for a home and during the process, we have vast experience working with buyers to get them ready to purchase their dream home. We can take you through the entire financing process for your home loan. We also can connect you to title companies/attorneys and real estate agents in your area that can help as needed.

Property Home Inspection Might Be Required

Lenders may also require a home inspection for those homes sold within the 180-day time frame. All renovations that require permits, such as room additions or structural changes of the home, require proper permits from the city’s building department. Property flipping has been scrutinized since the real estate and mortgage collapse in 2008. There are home developers who purchase REOs and foreclosures at a discount. These real estate investors are professional property fixes and flippers. They gut, renovate, and resell them for profit. HUD wants to ensure 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. All construction and renovation mortgage loans will require an as-is and as-complete appraisal. The as-is appraisal is the appraisal that will be given a value before the renovation of the work. The as-is appraisal is the appraisal value that will be rendered after the completion of the renovations.