Buy a House Fast

As a consumer, your main concern may be “What do I have to do to get the keys for my new house?”  For the mortgage broker arranging the loan and the lender providing it, there is a lot of behind-the-scenes work to get you to the closing table.

One hurdle in the process is the appraisal.  The lender wants to know the actual value of the property to make sure that it is in line with the selling price.  Over the past few years, some homes were sold for much more than the property was actually worth.  Consumers ended up with huge loans on properties that later could be sold for a fraction of what they paid; if the house went into foreclosure, banks lost much more than if the loan value and the actual property value were more in sync.  In areas where predatory lenders were at work, this difference was even greater.

To combat these potential losses, HUD recently released some new rules governing appraisals on FHA loans effective February 15, 2010.  All home loans are under stricter regulation these days.  Last May, Home Valuation Code of Conduct (HVCC) rules went into effect to regulate who can appraise property and how much they charge for it; FHA rules are much more specific.

Most people who comment on the foreclosure crisis today claim that appraisers were influenced by Realtors, banks, and even sellers to have the appraisal come in at a certain amount.  In the process they often ignored flaws or neighborhood factors that could influence a lower value.  To facilitate this, the appraiser might have been hand-picked, been paid a premium rate, or been influenced by conversation with the agent or the seller during the process. As a result, he would come in with a higher appraisal than the market could support.

The new rules for FHA appraisals intend to keep the appraiser independent.  High points of the changes include:

• The appraiser cannot be selected by the mortgage broker or be commissioned for his work by the lender.
• The appraiser must be familiar with the area where the property is located and with the type of structure he is appraising; i.e., a single family home vs. condominium or manufactured home.
• The mortgage broker can order the appraisal and be informed of the progress but cannot communicate with the appraiser during the appraisal.
• The name of the appraiser who actually did the work must appear in the paperwork.
• The fees the appraiser charged for the work can be listed in the appraisal report, but the fee should not include any administration fees from a third party.
• The only parts of the administrative fee that can be passed along (and listed separately) are the costs to order, process, or review the appraisal.
• The separate fees charged by both the appraiser and any third party must be “reasonable and customary” for the area.
• The borrower may request – and pay for – another appraisal if he believes the appraisal is inaccurate.
• If the borrower changes lenders, the appraisal can be transferred to the new lender.

These rules are intended to prevent the abuses of the past.  Some Realtors® and lenders have concerns, but the rules are here to stay.  Stay tuned to this blog for further developments.

Express Realty Services complies with all legal requirements if you are purchasing a home with an FHA or conventional loan.  For a great selection of properties in MD, or VA, contact us today.

Tags: appraisal, FHA, HUD rules

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