Site analysis: easements, encroachments, adjacent areas, views from property, type of topography, suitability of soil, etc.What do FHA appraisers look for?įHA appraisal guidelines have three components used to determine whether a property is eligible for financing, and if so, for how much: HUD may require a second FHA appraisal on any type of property, but unusual properties (such as manufactured homes and multifamily units) are more likely to be flagged. Properties in planned unit developments (PUDs).Manufactured homes (built after June 1976).Single-family homes (one to four-unit properties).Which properties are eligible for a reverse mortgage?Īccording to reverse mortgage appraisal requirements, eligible properties for FHA loans include: You can read more information about the 2020 reverse mortgage changes in our resource center. The FHA-insured HECM program was written into law in 1988, but multiple amendments have been made since that time with the goal of increasing consumer protection. Consider an income appraisal approach (i.e.Report marketability of homes in Airplane Zones.Per the latest FHA guidelines, appraisers are required to: They will perform a collateral risk assessment on all HECM applications, and if a property demonstrates risk, it will require a secondary valuation the lender can only underwrite the loan based on the smaller of the two appraisals.Īlthough some may fear that the new FHA appraisal requirements will increase cost and decrease efficiency, thus far only 20% of applications have been flagged for a second appraisal, while business continues as usual for the remaining 80% of applicants. Recently, HUD.gov issued a press release regarding FHA’s new requirement for a second appraisal for certain reverse mortgages. The estimate confirms the home is worth the amount that the loan is guaranteeing.

If the loan balance is higher than the property value, the government will cover the remaining portion to offset the lender’s loss, which stresses the need for accurate FHA appraisals. Because HECMs are government-backed, non-recourse loans, it means that once the loan becomes due and payable, borrowers (or their surviving heirs) will never be forced to pay more than the outstanding loan balance or 95% of the appraised property value-whichever is less. HECM borrowers are not required to make payments on the loan until it reaches a maturity event. Borrowers can choose to receive their loan proceeds as either a line of credit, monthly disbursement, partial sum, or lump sum, for which the property is used as collateral. The loan limit depends on several factors, including the estimated value of the home’s current worth per the results of the FHA appraisal, in addition to the age of the youngest borrower. So long as the homeowner meets the HUD eligibility requirements, a lender will determine a borrowing limit (or “principal limit), which establishes the maximum value of an applicant’s loan. To better explain how appraisals are used, you should first understand how a reverse mortgage works.Įssentially, the HECM program allows seniors to turn a portion of the wealth they’ve earned in home equity into loan proceeds to be used as disposable cash. Why does a reverse mortgage require an appraisal?Ī reverse mortgage appraisal determines the property’s eligibility and estimated worth in order to calculate the available size of a reverse mortgage loan. Learn more by clicking on one of the links below, or direct your questions to a GoodLife Reverse Mortgage Specialist who will be happy to help. Today’s post dives deep into the FHA appraisal guidelines on reverse mortgages to provide you with a better understanding of the process. One stipulation is the mandatory FHA appraisal requirement during the reverse mortgage application process. Together, the two regulatory agencies provide a number of reverse mortgage guidelines for these government-backed loans, which are designed to protect both borrowers and lenders. Department of Housing and Urban Development (HUD) alongside the Federal Housing Administration (FHA), allows seniors to convert a portion of their home equity into usable cash in the form of loan proceeds. Also known as a home equity conversion mortgage (HECM), this alternative form of financing is available to eligible homeowners over the age of 62 with sizeable equity in their home. If you feel like you could use additional cash-flow during retirement, a reverse mortgage might be able to help.

Home appraiser checklist