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FHA Mortgage Appraisals Become Portable

by Peter G. Miller
September 30th, 2009

Beginning next year FHA mortgage appraisals will become portable.

At first this may not seem like a profound idea, but it’s actually a big advance for borrowers.

The FHA requires full-blown appraisals for all new and refinanced loans, except when there’s a streamline refinance of an existing FHA mortgage. Because FHA appraisals require a licensed appraiser to physically examine the inside and outside of the property, such valuations are expensive, typically a few hundred dollars.

Traditionally it has been very difficult to get an appraisal and then decide to get a better loan with another lender. Lenders have no incentive to encourage such thinking even though borrowers have no obligation to use a given loan source. So, to lock in borrowers, lenders typically have charged “application fees” and made it difficult or impossible to transfer appraisals from one lender to another.

Charges for application fees ended July 30 when provisions under the Housing and Economic Recovery ACT (HERA) went into effect. In essence you can be charged a small fee for a credit check but nothing else before a good faith estimate of closing costs is delivered. This means you must know the full costs of the loan BEFORE you pay a cent for a mortgage application.

According to the Federal Reserve, “creditors must deliver or mail the early disclosures at least seven business days before consummation. If the APR contained in the early disclosures becomes inaccurate (for example, due to a change in the loan terms), creditors must ‘redisclose’ and provide corrected disclosures that the consumer must receive at least three business days before consummation. The disclosures also must inform consumers that they are not obligated to complete the transaction simply because disclosures were provided or because a consumer has applied for a loan.” (Emphasis mine).

Now the FHA is saying that if you do get an appraisal you have the right to take that appraisal to another — and cheaper — lender.

“In cases where a borrower has switched lenders, the first lender must, at the borrower’s request, transfer the case to the second lender. FHA does not require that the client name on the appraisal be changed when it is transferred to another lender.” (The “client” in this case refers to the original lender.)

The new rules make a lot of sense because they hold down borrower costs. It means, in essence, that borrowers can continue to shop for loans even if they have started the loan process with one lender and now want to move on to a second and less expensive lender. A cheaper loan, of course, can save many times the expense of an appraisal and an application fee, but now such expenses will not be barriers for borrowers who want to switch lenders.

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