FHA appraisals: new rules to know

New rules for FHA appraisals.

New rules for FHA appraisals.

The U.S. Department of Housing and Urban Development has recently unveiled new guidelines for appraisers conducting valuations for Federal Housing Administration loans. Since the housing crisis, cash-strapped lenders have become more wary of hopeful buyers relying on an FHA loan to secure their first mortgage. According to mortgage origination news source Scotsman Guide, the Mortgage Bankers Association and others in the banking community continue to pressure HUD to make sweeping changes to the FHA approval process. On Sept. 14, new changes aimed at making the FHA appraisal process more clear went into effect, as noted by the Sacramento Appraisal Blog. While significant, these changes may be only the first in a series of revisions to the FHA appraisal process with the goal of streamlining these valuations for everyone involved.

"The FHA appraisal handbook now says what appraisers 'must' accomplish."

Minor changes to language
Sacramento Appraisal Blog detailed some of the most important revisions in the latest FHA appraisal handbook The most noticeable change from previous versions is evident in the language used. In an effort to create a more definitive set of rules for valuation experts, the handbook now says appraisers "must" accomplish specific tasks. For example, the handbook states "the appraiser must operate all conveyed appliances and observe their performance," or "the appraiser must note and comment on all onsite hazards and nuisances affecting the property." By using unequivocal language, HUD hopes to eliminate any gray areas throughout the appraisal process. In a more minor language alteration, the handbook now refers to the appraisal inspection as the appraisal "observation." This could be to alleviate confusion between the valuation inspection and the home inspection, which is a separate process.

Process improvements
A few key changes in the overall process of preparing and performing the FHA valuation have been included in the new FHA handbook. A few of these concern documents that must be provided or reviewed at some stage in the appraisal process. One of them is the preliminary title report, since this falls under the new stipulation that the lender "must provide any other legal documents contained in the loan file." In California, this also includes the Transfer Disclosure Statement. The FHA also now requires appraisers to review airport contour maps surrounding the property, and analyze how the proximity to established flight patterns and noise levels may affect marketability.

The handbook has been revised quite significantly with regards to the actual process of conducting an FHA loan appraisal. Valuation experts must now capture comparison photos at an angle, so that all sides of the property are adequately documented. Appraisers are also now required to fully inspect any attic that is easily accessible. Previous handbook versions have only mandated a "head and shoulders" attic inspection, and this is still the case for attics that are not reasonably accessible. New guidelines also mandate a disclosure from the appraiser if the roof of a home is estimated to have less than two years of life remaining. In a similar vein, the FHA also now requires an inspection of a home's sump pump to determine whether it is functional.

Home loan
FHA loans make homes affordable for more people, but lenders have gotten more careful in how they proceed with them.

Potential effects
The Sacramento Appraisal Blog expects several effects to come of these new FHA rules, beyond the immediate changes in the process of each appraisal. According to their analysis, these changes reflect a growing trend throughout the appraisal industry to mold conventional valuation processes into a form similar to FHA valuations. This could mean changes for conventional appraisers in the near future. Due to the greater amount of work involved after implementing these changes, appraisers may begin charging a higher fee for FHA valuations than in the past. Sacramento Appraisal Blog suspects there may even be more rejections of FHA appraisal jobs because of the increased workload.

In order to smooth the transition from the old FHA appraisal process into this new one, valuation experts should bolster their relationship with the real estate agent involved in the sale. Agents can speed the process of acquiring documents like disclosure statements, while keeping the appraiser informed of all relevant technical details of the property. These new FHA guidelines may make for a more arduous appraisal process, but with the right preparation, it doesn't have to be a painful one.