For homes purchased with an FHA-insured mortgage loans, a home appraisal is arranged prior to closing. The mortgage lender arranges for the appraisal and the costs are supported by the buyer.
Beyond aspects related to the purpose of this FHA appraisal — that I will also address in my article — another common question that comes up often is the validity of the FHA appraisal.
Namely, how long does the FHA remain valid once it has been carried out? A related question to how long appraisals are good for is the aspect of whether these appraisals can be extended or not.
To answer the first question about the validity of an initial FHA appraisal – an FHA appraisal is usually good / valid for 120 days.
As I will explain below, the FHA appraisal can also be extended past the 120 days if certain conditions are met or if an update is required on the original appraisal report.
Conditions for Extending an Initial FHA Appraisal
In certain conditions, the FHA appraisal will be extended even beyond the normal validity period. The HUD Handbook 4000.1 discusses the instances and conditions in which this happens.
Part II, Section A-1 of the Single Family Housing Policy Handbook (“HUD Handbook 4000.1”) states that “Documents used in the origination and underwriting of a Mortgage may not be more than 120 Days old at the Disbursement Date.”
This is the first mention of the 120-day rule for the validity of an FHA appraisal, which must be valid at the date the loan is funded (“Disbursement Date”).
Therefore, on or near the closing date when the loan is funded, documents related to an FHA loan should be no more than 120 days old.
However, as I mentioned, there are conditions in which the initial appraisal can be updated or extended, which can extend its validity for a total period of 240 days.
The mortgage lender can agree to extend the validity period if something happens in the underwriting stage that would cause the appraisal to lose its validity. In such cases, the lender will seek an extension that would allow sufficient processing time for the event causing the delay.
An extension can be sought, and the appraisal can be extended for 30 days in any of the following situations:
- If before the expiration of the original appraisal, the lender approves the borrower, or the HUD issues a firm commitment;
- Prior to the expiration of the original appraisal, the buyer signs a valid sales contract.
To reiterate, these aren’t cumulative conditions and meeting either one of them would be enough to get an extension of the FHA appraisal’s initial validity.
There are cases when the appraisal must be updated even if the initial validity period has not yet expired. For example, in the event of a new case number assignment, the lender cannot use the appraisal that was performed under another case number, even though the appraisal is still valid.
According to the official guidelines, when the appraisal is updated by the lender, it remains valid for 240 days after the effective date of the original appraisal report that’s being updated.
Therefore, an FHA appraisal can be valid for as many as 240 days depending on the circumstances of the case, the person requesting the extension of the validity period or an update of the original appraisal report.
Things to Know About FHA Appraisals
Knowing how long an FHA appraisal is good for and the conditions in which it can be extended is an often-asked question by home buyers who might be nearing the expiration date of the appraisal or are in need of an extension.
Beyond the issue of validity, there are other things that buyers may be worried about including how long does the FHA property appraisal take, how is it performed, who pays for it, and whether it also includes home inspections.
To find out more about each of these, read the summary below:
How Long Does and FHA Appraisal Take?
The FHA appraisal process doesn’t take more than a couple of days and most times, it’s completed within a week. Of course, the actual length is influenced by various factors including the workload and efficiency of the appraiser.
During the appraisal, the FHA certified appraiser will visit the property and determine its market value and habitability and summarizes everything in an appraisal report.
The mortgage lender will arrange for the appraisal by selecting an approved appraiser to carry out the appraisal of the property.
How is an FHA Appraisal Performed?
Compared to conventional appraisals, the FHA-specific appraisal is a bit more complex in the sense that the appraiser is not only concerned with evaluating the market value of the property, they’re also concerned with evaluating whether the property meets the minimum standards for safety and health required by the HUD.
These requirements are necessary to establish whether the property is suitable for occupancy since the whole idea of a property financed with an FHA loan is that it will serve as the primary residence of the borrowers.
Therefore, the appraiser will examine the lot on which the property is built to determine if there’s anything that might cause damage to the foundation of the house (e.g. is water draining towards the house?).
The appraiser will also look at the state of the foundation and the roof to see if there are any damages that would allow moisture in the house or present a hazard to the occupants.
Another thing that will be inspected is whether rooms have a suitable egress that can be used in case of a fire or other emergency.
The appraiser will also examine whether all stairs and staircases have handrails, whether there’s any lead-based paint in the house, whether the paint is chipped or peeling.
Heating systems and cooling systems are also examined to see if they provide comfortable and healthy heating/cooling for the entire home.
Any irregularities are noted and documented by the appraiser along with any improvements of the property that would add value to it.
To this end, the appraiser will take photos of the lot, house and interiors to document its findings.
If there are gross violations of the HUD requirements or if there are major repairs needed, the loan process will be put on hold or the loan can be rejected, depending on whether the issues uncovered by the appraiser can be solved or not.
For the market value assessment, the appraiser will include a location map and will compare the property to other property sales in the area to see how the property stacks up to those sales.
The visual inspection of the property can usually be carried out in a single visit and takes only a couple of hours, while the research related to other sales in the area can take a couple of more days.
The property appraisal concludes with the writing of the appraisal report that will become part of the FHA loan documents.
As I’ve discussed in this article, the appraisal remains valid for 120 days if there aren’t other circumstances that would require an extension or an update of the original appraisal report.
Who Pays for the FHA Appraisal? How Much Does It Cost?
The FHA appraisal is financed by the buyer and not the mortgage lender. Payment is due upfront, and the cost is usually not rolled into the closing costs.
The FHA appraisal can cost anywhere between $300-$500. The cost can be affected by various factors including the individual or company performing the appraisal, the square footage of the property, the location of the property, the size of the land included, the type of the property as well as any extensive damage to the property.
Does the FHA Require Home Inspections?
Home inspections — the ones that conduct a more thorough investigation into the condition of the property — are not required by HUD, although they’re recommended.
Like FHA appraisals, home inspections can also cost a couple of hundreds, so it might be understandable if you don’t want to dig in your pockets for another inspection.
It still might be worth conducting one either way for your peace of mind.
FHA appraisals are normally valid for 120 days, unless some circumstances might require an extension or updating of the original appraisal. Even so, the appraisal cannot be valid for more than 240 days.
The FHA has a double finality of determining the market value of the property along with aspect related to safety and health for the occupants.
The FHA appraiser is selected by the mortgage lender who arranges for the appraisal. The costs of the appraisal are supported by the buyer.
Home inspections are not required by HUD, although borrowers are encouraged to get one done for their safety and peace of mind.
I hope my article has provided valuable answers to some of your most pressing questions about FHA appraisals and you now know what to expect from an appraisal and the conditions in which its validity can be extended.