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Welcome to FHA Appraisal FAQ’s

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Archived Webinars

http://portal.hud.gov/hudportal/HUD?src=/program_offices/housing/sfh/talk/parc/phiarch

1-800-CALL FHA FHA- Serving the American Homebuyer Since 1934

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1-800-CALL FHA

FHA APPRAISAL FAQs/Phone TOPICS

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Disclaimer

§  The purpose of this presentation is an overview of the subject matter with explanation of recent changes in FHA policy

§  It introduces and explains, rather than supplants, official policy in Handbooks and Mortgagee Letters

§  If you find a discrepancy between the presentation and Handbooks, Mortgagee Letters, etc., the official policies prevail

1-800-CALL FHA

www.hud.gov 7

1-800-CALL FHA

Presenters Wayne Morris, Appraiser Joe O’Dorisio, Appraiser

Appraisal /Technical Support

Denver Homeownership Center 1-800-225-5342 (800-Call FHA)

www.hud.gov 8

EEM (Energy Efficient Mortgage)

What is an EEM? Allows homeowners to improve the energy efficiency of

their home by financing the cost of the improvements into their loan.

If the savings in utility costs will more than pay for the costs of the improvement, borrower does not have to qualify for the extra costs of the energy improvements.

Who is eligible? New and existing 1-4 units including condominiums and

manufactured homes Purchases, streamline refinances, no cash-out

refinances, 203(h) disaster loans, and 203(k) Rehabilitation mortgages

Homeowners

FHA LENDER TRAINING

Allows homeowners to improve the energy efficiency of their home by financing the cost of the improvements into their loan. the savings in utility costs will more than pay for the costs of the improvement, borrower does not have to qualify for the extra costs of the energy improvements. The energy improvements agreed to by the borrower are rated by an Energy Consultant (using the Home Energy Rating System), which produces a HERS report. allowable cost of improvements are the lesser of A or B:

Cost of the improvements + cost of HERS report + inspections Lesser of 5% of: 1) value of property, 2) 115% of the median area price of houses, or 3) 150% of the conforming Freddie Mac limit

Note:

Maximum FHA county loan amount may be exceeded by the cost of the energy efficient improvements. New construction: borrowers qualify on sales price less cost of energy improvements

New and existing 1-4 units including condominiums and manufactured homes Purchases, streamline refinances, no cash-out refinances, 203(h) disaster loans, and 203(k) rehabilitation mortgages Homeowners HOW DO YOU APPLY?

Find a EEM lender Purchase a HERS report from an acceptable source (utility company, local state or federal agency or nonprofit) Qualify for the base mortgage before the energy efficient improvements are added No second appraisal is needed to support added costs

See Mortgagee Letters; ML 2009-18 ML 1995-46 ML 2005-21 ML 1993-13 See HUD Handbook 4155.1 6.D.1 Department of Energy’s website: http://www.energystar.gov/index.cfm?c=home_improvement.hm_improvement_contractors#s1 Department of HUD website: www.hud.gov/answers Department of HUD email: [email protected] Department of HUD telephone number: 1-800-Call FHA or 1-800-225-5342

WHAT IS AN EEM? WHO IS ELIGIBLE?

WANT MORE INFO?

www.hud.gov 9

EEM Mortgages

How do you apply? Find an EEM lender Purchase a HERS report from an acceptable

source (utility company, local state or federal agency or nonprofit)

Qualify for the base mortgage before the energy efficient improvements are added

No second appraisal is needed to support added costs

1-800-CALL FHA

www.hud.gov 10

EEM (Energy Efficient Mortgage)

Want More Information?

EEM Webinar is Archived See Mortgagee Letters; ML 2009-18 ML 1995-46 ML 2005-21 ML 1993-13 See HUD Handbook 4155.1 6.D.1 Department of Energy’s website:

http://www.energystar.gov/index.cfm?c=home_improvement.hm_improvement_contractors#s1

10

FHA LENDER TRAINING

www.hud.gov 11

Question

How do I update my license and address in FHA Connection?

1-800-CALL FHA

www.hud.gov 12

Answer

§ Go to www.hud.gov and then type “Appraiser’s Page” in the search block

§ From the left column, select “Update your information”

1-800-CALL FHA

www.hud.gov 13

FHA- Serving the American Hom!

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KEEP YOUR ROSTER INFORMATION CURRENT!

Sign up for the e-‐mails.

[email protected] WATCH FOR CHANGES

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Question

Which appraisal forms are FHA approved?

1-800-CALL FHA

www.hud.gov 17

Answer

FHA Approved Forms:

1004 URAR - Single Family Residential, UAD 1073 - Condominiums, UAD Compliant 1004C - Manufactured Homes 1025 - Small Residential Income Property 2-4 1004MC - Market Conditions Addendum 1004D - Appraisal Update Form

1-800-CALL FHA

Mortgagee Letter 2011-30

www.hud.gov 18

Question

Can I accept comparable sales and other data from a Realtor or Loan Officer?

1-800-CALL FHA

www.hud.gov 19

Answer

§  You can accept data from any source §  You must independently verify the data with

an uninterested party to the transaction or with public records

§  You must also verify the data with a party to the transaction

1-800-CALL FHA

Handbook 4150.2, 4-6, 8 & Appendix D-29

www.hud.gov 20

Question

What if I cannot verify a sale or condition of a comparable property? Can I still use it in the appraisal?

1-800-CALL FHA

www.hud.gov 21

Answer

§ Use it as supporting data § Disclose that it is not verified § Place little weight on that sale

1-800-CALL FHA

Handbook 4150.2, 4-6, 8 & Appendix D-29

www.hud.gov 22

Question

I am training an assistant. What work can the assistant perform and what part of the appraisal must I do?

1-800-CALL FHA

www.hud.gov 23

Answer

The roster appraiser must: §  Select the comparable properties §  Inspect the subject and comparable sales §  Perform all critical analysis §  Complete the Market Conditions Form §  Complete the reconciliation and sign §  Trainee can assist, but not sign the report

1-800-CALL FHA

Handbook 4150.2, 5-2 & FHA FAQ’s

www.hud.gov 24

Question

The home is a legal non-conforming use; however, it cannot be rebuilt. Is this acceptable to FHA?

1-800-CALL FHA

www.hud.gov 25

Answer

The appraiser is required to report this situation. It is up to the lender to decide if they want to make a loan on the property.

1-800-CALL FHA

Handbook 4150.2, Appendix D-19

www.hud.gov 26

Question

What determines if a second living unit is an Accessory Dwelling Unit or a duplex?

1-800-CALL FHA

www.hud.gov 27

Answer

§ The appraiser determines using “Highest and Best Use” as a guide

§ Must be under the same ownership

§ The ADU must be subordinate in size

1-800-CALL FHA

Handbook 4150.2, appendix D-21

www.hud.gov 28

Question

There is a site built home and a manufactured home both on one property. How do I handle this situation?

1-800-CALL FHA

www.hud.gov 29

Answer

If the manufactured home is being used as a living unit: §  It must be legal and meet all FHA requirements §  It must be on a permanent foundation §  Title must be purged §  It must be classified as real estate §  The tongue, wheels and axles must be removed

If the manufactured home cannot meet FHA requirements

the home should be considered a storage unit with the kitchen disabled and the utilities disconnected.

1-800-CALL FHA

Handbook 4150.2, Appendix D-60 Handbook 4150.2, Appendix D-60

www.hud.gov 30

Question

Is a manufactured home still eligible if the HUD label (tag) is missing?

1-800-CALL FHA

www.hud.gov 31

Answer

If the label or the data plate is missing: §  HUD states property should be rejected §  HUD recommends the appraiser contact the

lender prior to completion of report to determine if assignment should be completed

§  Verification may be requested from Institute for Building Technology and Safety (IBTS) by visiting the IBTS website at http://www.ibts.org/label

1-800-CALL FHA


www.hud.gov 32

Question

I am appraising a modular home. However, I cannot find any modular home comparable sales. What should I do?

1-800-CALL FHA

www.hud.gov 33

Answer

It is acceptable to use site built homes for comparable properties; however, you must support any adjustments, or lack of adjustments for any potential difference in marketability, appeal, or quality of construction between site built homes and modular homes.

1-800-CALL FHA

Mortgagee letter 09-16

www.hud.gov 34

Question

What are FHA’s guidelines for appraising unique properties?

1-800-CALL FHA

www.hud.gov 35

Answer

§  The property must be structurally sound and

readily marketable and meet HUD requirements §  The appraiser must establish market value §  Depending on the uniqueness of a property, the

final determination to accept or reject the loan is made by the lending institution's underwriter

§  The cost approach must be used

1-800-CALL FHA

Handbook 4150.2, 4-4

www.hud.gov 36

Question

I am appraising a two story townhouse. Can I use similar two story condos that sold recently in the same area?

1-800-CALL FHA

www.hud.gov 37

Answer

If the market would accept them as reasonable substitutes, then it would be acceptable.

1-800-CALL FHA


www.hud.gov 38

Question

What are FHA’s rules on excess land?

1-800-CALL FHA

www.hud.gov 39

Answer

§  Excess land is larger than what is typical in the neighborhood AND capable of a separate use

§  The excess portion can be subdivided and marketed as an individual parcel

§  In outlying areas, appraisers may need to use different criteria because the market may accept a wide variance in lot sizes

§  If the plot contains excess land, the appraiser should describe it but not value it

§  The appraisal is based upon a hypothetical condition §  A legal description of the portion being appraised is

required

1-800-CALL FHA


www.hud.gov 40

Question

Is the porch and patio required to be included on the sketch?

1-800-CALL FHA

www.hud.gov 41

Answer

§  FHA requires the building sketch showing the Gross Living Area above grade, including all exterior dimensions of the house, patios, porches, garages, breezeways and other offsets

§  Sketch must show if porches and patios are covered or uncovered

§  Show calculations used to estimate gross living area

§  An interior sketch or floor plan is required for properties exhibiting functional obsolescence

1-800-CALL FHA


www.hud.gov 42

Question

I completed an appraisal where the appraised value was below the contract price. The contract price was later reduced to the appraised value. The underwriter is asking me to include this information in the appraisal. Can I do this and is it a new assignment?

1-800-CALL FHA

www.hud.gov 43

Answer

Yes you can, and it would not require a new assignment.

The appraiser should: § Review the new contract and add the

information in the addenda of the appraisal

§ Change the date of signature of the appraisal

1-800-CALL FHA

USPAP FAQ 135

www.hud.gov 44

Question

Lender A ordered an appraisal, which was completed. The appraisal was transferred to lender B, who wants to order another appraisal. Can this be done?

1-800-CALL FHA

www.hud.gov 45

Answer

A second appraisal may only be obtained if: §  There are material deficiencies in the

original report §  The appraiser is on the lender’s

exclusionary list of appraisers §  Failure of the first lender to provide a

copy of the appraisal in a timely manner

1-800-CALL FHA


www.hud.gov 46

Question

When a case number is transferred with a completed appraisal, can the lender’s name be changed?

1-800-CALL FHA

www.hud.gov 47

Answer

It cannot be changed. When a borrower has switched lenders: §  The 1st lender must transfer the case to

the 2nd lender upon the borrower’s request

§  FHA does not require that the client name on the appraisal be changed when it is transferred

1-800-CALL FHA


www.hud.gov 48

Question

The underwriter is asking for the cost approach. Is it true the cost approach is not required by FHA?

1-800-CALL FHA

www.hud.gov 49

Answer

§  The cost approach is required by FHA on unique properties, specialized improvements or new manufactured homes

§  If the client requests the cost approach it must be completed

§  If the cost approach is not completed, the appraiser should discuss why the approach is not applicable for a credible assignment

1-800-CALL FHA


www.hud.gov 50

Question

A lender called and asked me to complete a final inspection on a property with repair issues.

I did not complete the original appraisal. Can I do this?

1-800-CALL FHA

www.hud.gov 51

Answer

§  The underwriter can have another FHA appraiser currently in good standing on the FHA Appraiser Roster complete the final inspection

§  The inspection results should be reported on form 1004D

§  This is a new assignment if the original appraisal order and scope of work did not include a final inspection

§  The appraiser must disclose if they have performed any services in the last 3 years on this property if it is a new assignment

1-800-CALL FHA


www.hud.gov 52

Question

What photographs are required for FHA appraisals?

1-800-CALL FHA

www.hud.gov 53

Answer

FHA requires photographs of: §  Front, rear and all sides of the home §  Any improvements with contributory value that are not

captured in either the front or rear photographs §  Street scene to include a portion of the subject site §  The grade of the vacant lot for proposed construction §  Interior photos on HUD owned REO with greater than

$5,000 in repairs

1-800-CALL FHA


www.hud.gov 54

Question

Can I use MLS photos when my comparable photographs do not turn out?

1-800-CALL FHA

www.hud.gov 55

Answer

§  Photos depicting the front view of each comparable sale must be taken by the appraiser

§  The photos taken by the appraiser are considered evidence of compliance with the Scope of Work of having inspected each comparable sale from the street

§  The use of MLS photos to exhibit comparable condition at the time of sale is acceptable; however, the appraiser must include their photos as well to document compliance

1-800-CALL FHA


www.hud.gov 56

Question

Are wood stoves or solar heating devices acceptable as the only heat source in a home with a FHA loan?

1-800-CALL FHA

www.hud.gov 57

Answer

§  FHA requires a permanently installed back-up conventional heating system that maintains a temperature of at least 50 degrees in areas containing plumbing

§  When the primary source is from a solar system or a wood burning stove, the system must be capable of operating without human intervention for extended periods of time

§  Must be in compliance with any local code and regulations

§  Must be acceptable to the market participants

1-800-CALL FHA

Handbook 4905.1, 2-5 & FHA FAQ’s

www.hud.gov 58

Question

I conditioned the appraisal for an electrical and furnace inspection. The underwriter wants me to do a final on these requirements. Should I complete the final?

1-800-CALL FHA

www.hud.gov 59

Answer

§ A licensed professional should complete the final inspection of these items

§ As an appraiser you may not be qualified to determine if the repairs have been completed correctly

1-800-CALL FHA

Handbook 4155.2, 4.6

www.hud.gov 60

Question

I inspected the subject and found what I consider a safety issue. The underwriter states it is not a FHA requirement and wants me to remove it from the appraisal. What should I do?

1-800-CALL FHA

www.hud.gov 61

Answer

§  If you think it is a safety, security or soundness issue, there should be a requirement to have it repaired

§  The underwriter can use HUD form 54114 to waive a cosmetic condition or unnecessary repairs

1-800-CALL FHA

Mortgagee Letter 2005-48 & Handbook 4155.2, Rev-1, 4.5

www.hud.gov 62

Question

I inspected a property and it does not have GFI outlets in the kitchen and does not have smoke detectors. Both are required by code. Should I make requirements in the appraisal?

1-800-CALL FHA

www.hud.gov 63

Answer

§  FHA does not enforce local building codes

§  Disclose any deficiencies found in the home, even if they are not MPR items

§  Do not make the appraisal “subject to repairs”

1-800-CALL FHA


www.hud.gov 64

Question

The home was built before 1978 and it has peeling paint. Do I condition for lead paint abatement and who can perform the work and perform the final inspection?

1-800-CALL FHA

www.hud.gov 65

Answer

§  The appraisal should be subject to repairs §  Provide a detailed description and the exact

location of any peeling paint §  FHA Roster appraisers, inspectors and other

independent third parties may perform the inspection to verify that painting repairs have been completed as required

§  These inspections are to determine completion of the repairs, not compliance with the regulations

1-800-CALL FHA

Handbook 4150.2, Appendix D-6 & FHA FAQ’s

www.hud.gov 66

Question

The home was built after 1978 and has peeling paint. Since there are no lead based paint issues, do I have to call for repairs?

1-800-CALL FHA

www.hud.gov 67

Answer

If there is an unprotected exterior surface, the peeling paint must be remedied.

1-800-CALL FHA

Mortgagee letter 2005-48, Page 2

www.hud.gov 68

Question

If there is a shed or fence in the back yard with peeling paint, what should I do?

1-800-CALL FHA

www.hud.gov 69

Answer

If the home was built before 1978, the appraiser must condition all defective paint surfaces to be repaired including fences, detached garages, sheds, and outbuildings.

1-800-CALL FHA

Handbook 4150.2, 3-6, 17

www.hud.gov 70

Question

Are floor coverings (carpet or vinyl) required?

1-800-CALL FHA

www.hud.gov 71

Answer

No, however the appraiser should check for safety issues, like remaining carpet tack strip. If comparable sales have floor coverings, then a market supported adjustment may be required.

1-800-CALL FHA

Mortgagee Letter 2005-48, Page 2

www.hud.gov 72

Question

Will FHA insure former Meth houses if they have been cleaned up?

1-800-CALL FHA

www.hud.gov 73

Answer

Yes, however they must be cleaned to Environmental Protection Agency standards. In August 2009, the EPA issued “Voluntary Guidelines for Methamphetamine Laboratory Cleanup.”

See FAQ Meth Remediation Protocol at: http://portal.hud.gov/hudportal/documents/huddoc?id=FAQsMethRem.pdf

1-800-CALL FHA

Mortgagee Letter 2005-48 & FHA FAQ’s

www.hud.gov 74

Question

The home has security bars on the bedroom windows. Is this acceptable to FHA?

1-800-CALL FHA

www.hud.gov 75

Answer

If there are inside releases, and they are acceptable to the local building and fire codes, then they are acceptable.

1-800-CALL FHA

Handbook 4150. 2, 3-6

www.hud.gov 76

Question

Is attic insulation required by FHA and if so, how much is required?

1-800-CALL FHA

www.hud.gov 77

Answer

Attic insulation is not required by FHA; however, an adjustment may be required if the home does not meet normal standards for the typical buyer in the area.

1-800-CALL FHA


www.hud.gov 78

Question

What are the roof requirements for FHA insured financing?

1-800-CALL FHA

www.hud.gov 79

Answer

§  The covering must prevent moisture from entering and provide reasonable future utility, durability and economy of maintenance

§  Note if there is any evidence of deterioration of roofing materials, including worn, cupped or curled shingles

§  The appraiser must note in the appraisal if he/she could not adequately observe the entire roof

1-800-CALL FHA

Mortgagee letter 2005-48, Page 2 & Handbook 4150.2, Appendix D-25

www.hud.gov 80

Questions

What if the roof is covered with snow? How should I condition the appraisal?

1-800-CALL FHA

www.hud.gov 81

Answer #1

In areas where the snow is likely to lay for more than a few days:

§  The appraiser is required to make an inspection of the attic and all visible roofing areas for signs of failing roofing materials

§  If there is evidence of damage and/or leaks, the appraiser is to condition the appraisal for inspection

§  If there is no evidence of damage and/or water leaks, the borrower must be informed that the roof was snow covered at the time of the appraisal and that it is acceptable to the purchaser without any warranty or guarantees from HUD-FHA

1-800-CALL FHA

Handbook 4150.2, Appendix, D-5

www.hud.gov 82

Answer #2

§  In areas where the snow is not likely to lay for more than a few days, a clear roof inspection is to be obtained prior to closing

§  The appraiser is required to make a thorough inspection of the attic and all visible roofing areas for signs of failing roofing materials and report all roofing deficiencies in the appraisal report

1-800-CALL FHA

Handbook 4150.2, Appendix, D-5

www.hud.gov 83

Question

Does FHA require a residence to have bedrooms?

1-800-CALL FHA

www.hud.gov 84

Answer

No, the home must be marketable, and the appraiser must determine what impact this may have on value and marketability. The appraiser must make market based adjustments when necessary.

1-800-CALL FHA

Handbook 4905.1

www.hud.gov 85

Question

Are appliances required for FHA?

1-800-CALL FHA

www.hud.gov 86

Answer

No, an adjustment may be required if the comparable sales have appliances and the subject does not.

1-800-CALL FHA

Handbook 4905.1, REV 1, 2-5

www.hud.gov 87

Question

I have been asked to complete an appraisal on new construction that is almost complete, only lacking carpet and appliances (over 90% complete). How do I condition the appraisal? Can I complete the final as an appraiser?

1-800-CALL FHA

www.hud.gov 88

Answer

§  The appraisal should be completed subject to repairs

§  The appraiser should list all items that need to be completed, with the cost to cure

§  The lender can select anyone determined to be credible to complete the inspection if the loan is processed under ML 01-27 (Lender to Certify) otherwise a final inspection must be completed by a FHA fee inspector

1-800-CALL FHA

Handbook 4150.2, Appendix D-34 & FHA FAQ’s

www.hud.gov 89

Question

I am appraising a new construction home. Can I use 3 builder sales or should I go outside of the subject subdivision?

1-800-CALL FHA

www.hud.gov 90

Answer

The comparable selection should include: §  At least one sale from outside the subdivision or

project and one sale from within the subdivision or project

§  The third sale may be either §  The appraiser should keep in mind that sales or

resales from within the subject subdivision or project are preferable to sales from outside the subdivision as long as the developer or builder of the subject property is not involved in the transaction

1-800-CALL FHA


www.hud.gov 91

Question

What are the minimum distances allowed by FHA between a well and a septic tank?

1-800-CALL FHA

www.hud.gov 92

Answer

The following distances are required by FHA, however, if local or state health authority requires greater distances, then the property must comply with local or state requirements. Well location: §  Property line – 10’ §  Septic tank – 50’ §  Drain field – 100’ §  Seepage pit – 100’ §  Absorption bed – 100’

1-800-CALL FHA

Handbook 4910.1, Appendix K, & Mortgagee Letter 2002-25

www.hud.gov 93

Question

I was asked to complete a HUD owned REO appraisal. Who is the intended user of the report, and do I complete the report “subject to” repairs?

1-800-CALL FHA

www.hud.gov 94

Answer

When given a HUD owned REO appraisal assignment, the appraiser is to estimate an “as is” value for the intended use of giving the asset manager and HUD/FHA a basis for determining the listing price for marketing purposes.

1-800-CALL FHA

Handbook 4150.2, Appendix A-1

www.hud.gov 95

Question

I received a HUD owned REO appraisal request from an AMC. There was no specific client. How do I address the intended users of the REO appraisal report?

1-800-CALL FHA

www.hud.gov 96

Answer

The intended users of the REO appraisal report are, the Asset Manager and HUD/FHA. Also keep in mind that when the property is sold, the “potential” lender is given a copy of the appraisal for establishing a loan on the home.

1-800-CALL FHA

Handbook 4150.2, Appendix A-1

www.hud.gov 97

Question

I was assigned a HUD owned REO appraisal with instructions to make a statement regarding insurability. How do I handle this?

1-800-CALL FHA

www.hud.gov 98

Answer

For HUD owned REO property, the appraiser must use one of three possible responses: §  Insurable – meets FHA minimum property

requirements §  Insurable with escrow – property requires no

more than $5,000 in repairs §  Uninsurable – property requires repairs more

than $5,000. Property may qualify for a 203(K) program. Note: repairs do not include “cosmetic” repairs

1-800-CALL FHA

Handbook4150.2, Appendix A-1

www.hud.gov 99

1-800-CALL FHA

CONTACT FHA

1-800-CALLFHA (800-225-5342)

Email: [email protected]

WWW.HUD.GOV/ANSWERS

[email protected] to sign up for HUD news and

updates including upcoming trainings and webinars

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THANK YOU!

Questions? 1-800-225-5342

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