Appraiser Independence Requirements – Fannie Mae
In this article, we will discuss and cover conventional appraisal guidelines when buying a home with a conventional mortgage loan. We will also compare transferring an FHA appraisal versus a conventional home appraisal from one lender to a different mortgage lender. You can transfer an FHA appraisal to another lender if you decide to change lenders during the mortgage process.
Conventional Appraisal Guidelines on Transfering a Home Appraisal From One Lender to a New Lender
Lenders will honor an FHA appraisal for conventional loans, FHA loans, and VA loans. However, you cannot transfer a conventional appraisal to a different lender unless the new lender has the same Appraisal Management Company in their list of approved appraisers. We will explain more about conventional appraisal guidelines and how it works on home purchase and refinance transactions.
What Is a Conventional Appraisal?
A home appraisal is required for both a purchase mortgage loan as well as a refinance mortgage loan. A home appraisal is an appraiser’s opinion on the value of the subject’s home. The most common appraisal that is used by lenders is the comparable approach appraisal. In this article, we will cover and discuss conventional appraisal guidelines and home appraisals during the mortgage process.
When Is A Home Appraisal Ordered During Mortgage Process?
Ordering a Home Appraisal During Mortgage Process is done after the home inspection. Homebuyers will have contingency clauses for a home inspection and home appraisal on their home purchase contracts. Homebuyers can cancel the purchase contract if the home inspection and/or home appraisal does not come to the satisfaction of buyers. If the home inspector comes back with a bad inspection report, the buyer can cancel the contract and get their earnest money back.
Conventional Appraisal Guidelines on Home Value Not Appraising Out at Home Purchase Value
If the home appraisal does not come in at value, the home buyer can do two things:
- Re-Negotiate the home sales price
- Do an appraisal rebuttal
The only cost outside closing that home buyers need to come up with prior to closing are home inspection and appraisal costs. Home inspections are voluntary and not required by lenders. However, home appraisals are mandatory.
Conventional Appraisal Guidelines on Comparable Approach Appraisals
Most lenders depend on the comparable approach appraisal. Comparable approach appraisals are based on similar and like properties that are similar to the subject property within a mile radius. An appraiser will look for homes that are similar to the subject property in square footage, style, number of bedrooms, number of bathrooms, and amenities.
How Does The Comparable Approach Work?
The comparable properties need to be properties that are sold and recorded and not homes that are just listed. The comparable homes do not be exactly the same. Comparable homes used to compare the subject property can be larger or smaller. Adjustments will be made to substantiate the value of the subject property.
Comps Need To Be Close By
Another important factor the appraiser considers is the distance of comparable sales compared to the subject property. Distance plays an important factor. Most appraisers will look for comparable sales within a mile radius of the subject property. However, if there are no comparable sales within a mile radius, the appraiser needs to go further out to find comparisons to the subject property.
Comparable Sales That Are Not Nearby The Subject Property
There are cases where an appraiser needs to go out several miles of the subject property to find a comparable. To justify such comparable sales, the appraiser will justify his subject property value by positive or negative adjustments with the location of the comparable sales compared to the subject property.
Appraisal Review of Conventional Appraisal During Mortgage Process
Once the appraisal is completed, it is turned in to the mortgage lender’s appraisal review department. The home appraisal is then scrutinized and reviewed by the appraisal review underwriter. In the majority of the cases, there are no problems with appraisals. However, there are cases where appraisals come in lower than the purchase price of the home. In such cases, the home buyer can renegotiate the purchase price. If the value of the property is not increased, homebuyers need to put more money down. Mortgage lenders will go by the appraised value of the home in determining the loan to value. In the event the mortgage lender does not like the appraisal, a second appraisal or field review will be required.
Field Review Stage Of Home Appraisal During Mortgage Process
If the mortgage lender does not feel comfortable with the home appraisal, he or she can request a field review appraisal. A field review is normally a drive-by and is a second opinion of the first home appraisal. In order for the underwriter to issue a clear to close, the appraisal needs to be signed off and in cases of field reviews, the field review needs to justify the first appraisal.
What Happens To Conventional Appraisal When Changing Lenders?
There are times when home buyers need to change lenders if they get a last-minute mortgage loan denial or go through stress during the mortgage process. The good news with FHA Loans is that if borrowers change lenders during the mortgage process, the FHA Home Appraisal gets transferred to the new FHA Lenders when the borrower’s FHA Case Number gets transferred. This is not the case with Conventional Loans. If the homebuyer decides to change loan programs from FHA to Conventional, most Conventional Lenders will honor an FHA Loan Appraisal. If the borrower is transferring a conventional loan to an FHA Loan, then the Conventional Appraisal needs to be changed to an FHA Appraisal.
Conventional Appraisal Guidelines During The Home Buying And Mortgage Process
You are a home buyer and entered into a real estate purchase contract and are pre-approved for a home loan. The mortgage application process now starts and your home closing is scheduled for 30 days. You do not expect anything to go wrong and no delays. You have good credit, good stable income, and reserves to close your home loan in time. What can go wrong?
Delays in the Conventional Appraisal During the Mortgage Process
Home appraisals can sometimes be the main cause of delays in home closings and sometimes can kill the whole real estate transaction. Appraisals are required for all real estate purchase transactions where the home buyer needs a mortgage loan. All lenders require a residential home appraisal for the subject property. There are different types of residential home appraisals:
- FHA home appraisals are for borrowers with FHA loans
- Conventional appraisal is for borrowers with conventional loans
- VA appraisals are for VA homebuyers
- USDA Appraisals are for USDA home buyers
In the following paragraphs, we will discuss and cover the home appraisal process during today’s booming housing market.
More on Understanding the Importance of Conventional Appraisal
A home appraisal is a report written by a licensed appraiser certifying the valuation of the subject property. Home appraisals are required by the lender. This is because this is used to determine the value of the property the mortgage lender is using as collateral against the mortgage loan they are giving you. An appraiser is an independent third-party licensed professional who has no financial part in the property and the outcome of the valuation of the subject property. Whether the valuation of the subject property comes in high or low, the value does not affect the appraiser nor is the appraiser rewarded for giving his valuation. The appraiser still gets paid regardless.
When Is The Home Appraisal Ordered and How Long Does It Take
The home appraisal process has changed drastically since the real estate and financial meltdown of 2008. The mortgage lender orders the appraisal through an Appraisal Management Company often referred to as the AMC. The Appraisal Management Company then assigns the appraisal order to one of the many local independent appraisal companies they have on their list of approved appraisers. The mortgage loan originator nor the mortgage lender can not have any contact with the appraiser as they used to in the past.
Conventional Appraisal Guidelines on Having Contact With The Appraiser
It is illegal for the loan originator to have any contact with the subject property appraiser. This is due to regulations created in fear of the loan originator might influence the appraiser to come up with a higher value. The home buyer is responsible to pay for the appraisal. Paying for the appraisal is the only cost outside closing that a mortgage loan borrower needs to come up with besides the home inspection fees, which are optional.
What Do Home Appraisals Consist Of?
Home appraisal reports are extremely detailed and consist of the following:
- The property address and details of the subject property
- The home appraisal consists of comparable sales to the subject property
- Three similar and like properties that are comparable to the subject property needs to be on the report along with details of the recent sales and the price adjustments compared to the subject property
Conventional Appraisal Guidelines on the Condition of the Property
The general condition of the property:
- An appraiser is not a home inspector and a home inspection will not be done
- However, general observations need to be noted such as missing roof shingles, cracked driveway, broken windows, peeling paint, garage door not working, etc.
- Geographical area notes such as schools, neighborhood analysis, property values in the area, growth, etc.
The appraiser will not his opinions and other comments on the home appraisal report.
Things That Can Go Wrong With Appraisals
There are two things that can go wrong with home appraisals. The first is the appraisal can note that the property is in need of repairs that do not meet lending guidelines such as broken windows, peeling paint, non-functional electrical, plumbing, and/or HVAC. If this is the case, the appraiser will turn in the appraisal report noting that the property is in need of repairs. The seller will be notified that the repairs the appraiser noted the need to be done and the appraiser needs to go back out for a re-inspection. A re-inspection fee will be charged and it is normally $100.00 depending on the appraisal management company. If a re-inspection needs to be done, this will run into delays in closing the home and an extension is normally required due to the delay.
Lower Value Than Purchase Price on Conventional Appraisal
Another issue there is with appraisals is that the appraisal comes in low. In most cases when appraisals come in below the real estate purchase price, the seller normally lowers the real estate contract purchase price to the appraised value. There are times when the sellers do not want to budge on the sales price but the home buyers still really want the property. If this is the case, the home buyer can order an appraisal rebuttal through their lender. The seller’s real estate agent needs to complete a real estate rebuttal form.
Nearby Comparable Recent Sales To The Subject Property Requirements
They need to list five comparables to the subject property. They need to state the reason why they feel that the low appraisal is not justified. The appraisal rebuttal form is then submitted back to the Appraisal Management Company. The appraisal rebuttal process normally takes a week. Most appraisal rebuttals are not successful unless you can provide strong comparables to the subject property.
Buying Home With Low Appraised Value
If the appraisal rebuttal is not successful, the home buyer can still purchase the property at the original purchase price but the mortgage loan will be based on the appraised value and not at the real estate purchase price. The home buyer needs to come up with the additional cash difference between the purchase and actual appraised value along with the down payment required based on the appraised value. For example, if the home buyer has a real estate purchase contract for $110,000 on a subject property but the home was appraised at $100,000, the home buyer’s lender will base the loan based on the $100,000 appraised value. If the home buyer is required a 3.5% down payment for the property purchase, the home buyer needs to come up with 3.5% of the $100,000 appraised value as well as the additional $10,000 ($110,000 actual purchase price) for a total of $13,500 along with closing costs to complete this real estate purchase transaction.