Federal Housing Administration loans have become more affordable in 2015, thanks to a drop in the annual mortgage insurance premium that the FHA charges. Add lower credit requirements and down payments to the mix, and the fact these loans are assumable, and FHA mortgages are an attractive option to an ever broadening assortment of borrowers. As you are all probably aware by now, over the past few months Fannie Mae has taken a shot at improving appraisal quality through a poorly executed roll out of Collateral Underwriter. While the basic philosophy was sound, the implementation (notably, the lack of underwriter training) has left a bad taste in many an industry participant’s mouth.
Now, apparently, it is the Federal Housing Administration’s (FHA) turn! In March, 2015 FHA published several new and revised ‘Appraiser and Property Requirements’ in the Single Family Housing Policy Handbook (SF Handbook; HUD Handbook 4000.1). This tome is 559 pages and frankly I have not had time to sort out all of the new vs. old General Appraiser Requirements. They did not bother to highlight the changes. Perhaps FHA thought a ‘soft’ introduction would be more palatable. I have noted a few items that could, from an appraiser’s perspective, affect or significantly delay your FHA transactions:
- When performing an appraisal,the Appraiser must review and analyze the following:
- any legal documents contained in the loan file, (???????????)
- and report the results of that analysis in the appraisal report.
- Report the date(s) of prior sale(s) or transfer(s) of each comparable that occurred within three years of the effective date of the appraisal. (FHA Specific Requirement – Fannie Mae requires only one year).
- The Appraiser must obtain a fully executed form HUD-92541, Builder’s Certification of Plans, Specifications, and Site, signed and dated no more than 30 Days prior to the date the appraisal was ordered, before performing the appraisal on Proposed Construction, Properties Under Construction or Properties Existing Less than One Year. The Appraiser must review the form and analyze and report any discrepancies between the information provided by the builder and the Appraiser’s observations.
- The Appraiser must treat room additions and garage conversions as part of the GLA of the dwelling, provided that the addition or conversion space:
- is accessible from the interior of the main dwelling in a functional manner;
- has a permanent and sufficient heat source; and
- was built in keeping with the design, appeal, and quality of construction of the main dwelling.
- However, FHA requires the Property to comply with all applicable zoning ordinances.
- Partially Below-Grade Habitable Space refers to living area constructed partially below grade, but has the full utility of GLA. (apparently this can now be included in the living space!)
- Energy Efficient Building Components, Solar Systems, etc.: requiring that contributory value of building components that enhance efficiency or energy savings must be analyzed and reported. FHA requires that the appraiser utilize all appropriate methods of valuation and does not restrict this to only a matched pairs analysis.
- The Appraiser must comment on any non-residential use within the Property and state the percentage of the total floor area that is utilized as non-residential. The Appraiser must report whether the non-residential usage is legal and in compliance with current zoning requirements.
I recognize that not all of these items are technically ‘new’ requirements; however, they are worth noting. This Handbook is due to go into effect June 15, 2015. Stay tuned for more as developments unfold!
Turner’s Appraisal Services helps people make informed property valuation decisions by providing easy to understand yet comprehensive real estate appraisal reports. I am IRS Qualified and a California State Certified Real Estate Appraiser with local expertise in the Los Angeles neighborhoods. To discuss Los Angeles Area property values please feel free to call me anytime.