2 Appraisals on FHA when over 100% of original purchase price.WHY

[Dane Peterson]

I'm still pretty green to real estate. Two years and counting and I love that every deal has it's own challenges or hurdles. Even the easiest of deals will have something.

Another new "policy" has just been explained to me by the lender, for the borrower, that the FHA requires a 2nd appraisal when the purchase price is over 100% of the seller's purchase price and within the 91-180day period... Also to go along with this, the FHA will not allow the buyer to pay for that 2nd appraisal (not that I would if I was the buyer).

Can anyone give me the reasoning for this? I understand the 90day seasoning rule in effect with the FHA on rehabs but what does the price have anything to do with it when there are plenty of comps, proof of paid rehab work & the 1st appraisal comes in to justify the price? We aren't overpriced if anything we are under.

I'm not complaining by any means. Plenty of profit in the deal that coming out of pocket either $250 (if buyer's agent will pay half) or $500 isn't that big a deal but it's the policy itself. If the FHA wants to implement this sort of policy then it should be on the lender or FHA to cover this. Also I'm always on the listing, selling or cash buyer side so I never deal with the appraisals besides to let the appraiser in the property but is $500 standard for appraisals right now? Seems a bit steep and i'm assuming this is a lender cost that's fluffed a bit.

[Chris Mason]

It's the FHA anti-flipping rule. You don't have to agree with it or understand it, you just have to know it and work around it. The good news is that FHA isn't the only game in town game in town for folks that don't have 10% down, however.

This my solution: turn the FHA buyers into FNMA HomeReady buyers @ 97% or 95% LTV. A few local flippers (and listing agents that list flips) put my fliers for this out at open houses, and counter all FHA offers with "must get preapproved w/ Chris Mason for conventional financing" (unless of course the highest and best offer is already conventional, in which case this is unnecessary for sellers/listing agents and would serve no purpose).

FNMA does not do rock bottom FICO scores and marginal DTIs like FHA will, so of the 10 FHA offers you get, you may be reduced to 3 or 5 still qualified offers. But with 1 appraisal instead of 2, and conventional property standards rather than FHA, the odds of an appraisal issue just got cut by more than half - good news for the seller and agents. And if the buyer has decent credit, HomeReady is way better financing than FHA anyways, so no one is being done a disservice here - and good news for the homebuyer. FHA loans are often higher profit for lenders, which is why folks with solid credit get shoved into FHA when Conventional is a better fit -- the folks shoving well qualified borrowers into FHA for no reason are the folks doing the disservice. FHA is supposed to be a gov't backed "second chance" for folks with bruised credit (& for that purpose, it is indeed a great tool for the toolbox), not the default go-to for anyone putting less than 20% down on a SFR that it has become due to lender profitability.