When Two Appraisals Are Required By Mortgage Lenders

In this article, we will cover and discuss 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. In the following paragraphs, we will cover the topic of why a mortgage lenders would require two home appraisals.

Why Would a Home Need Two Home Appraisals?

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

What Happens If Two Appraisals Are Different?

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.
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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 a second home 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.

What Triggers a Second Appraisal From The Mortgage Underwriter?

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.

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.