Effective immediately, FHA has rescinded the second appraisal requirements for properties located in San Jose and rest of the Bay Area (Considered declining markets). For Bay area borrowers where loan amounts can generally exceed $417,000 2nd appraisal requirement was a problem on 2 counts:
- Increased fees towards appraisal (2 appraisals hence double the fees)
- Danger of loan getting declined or loan amount reduced if the value of the second appraisal came lower at the last moment
The 2nd problem was a bigger risk if the borrower had removed his/her appraisal or loan contingency. It could potentially result into loss of earnest money deposit. The new rule would make it easier for borrowers to bring in the minimum down payment of 3.5% even if the loan amount is >$417,000 and not worry about 2nd appraisal.
Here are the highlights of the new rule:
- For properties located in declining markets, FHA no longer requires second appraisal for loan amounts greater than $417,000 and LTVs greater than 95%.
- Cash-out refinance transactions no longer require second appraisals for loan amounts greater than $417,000 and properties located in declining markets.
- Effective for all FHA loans registered on or after Monday, November 30, 2009, some lenders may still require an appraisal from a lender-approved appraisal management company when any loan amount exceeds $417,000 and the property is located in a declining market. However, a second appraisal will no longer be required.
FHA continues to require a second appraisal if a property is sold within 180 days of seller acquisition date and the new purchase price is 100% or more higher than the seller acquisition cost. For additional information, refer to FHA Mortgagee Letter 2006-14 Property Flipping Prohibition Amendment and FHA Mortgagee Letter 2009-48 Second Appraisal Reporting Requirement.
If you would like to know if an FHA loan is good for your home purchase or refinancing, send me an email at [email protected] or call my office at 408.905.6261.