If you are buying a home with FHA financing or refinancing with the FHA cash-out program, you will need an FHA appraisal. The FHA appraisal gives the lender an idea of the amount of collateral is available in the home. If the value doesn’t meet the FHA requirements (it’s not at least as high as the purchase offer), the lender can’t offer FHA financing.
Sometimes, though other issues occur with a loan long after the appraiser does his job. So how long is the FHA appraisal good for?
The 4-Month Rule
The FHA has a generic rule that any paperwork that has the opportunity to change over time, is only good for 4 months or 120 days. This includes the FHA appraisal. If your loan takes longer than 4 months to close, then you may need an appraisal update or an entirely new appraisal.
In some cases, you may be able to secure a 30-day extension on the home’s appraised value. This may only occur if one or both of the following are true:
- The lender approved you for the loan before the expiration of the appraisal
- You signed a purchase contract before the expiration of the appraisal
Extending the Appraisal’s Validity
If you need more than a 30-day extension, you will likely need an appraisal update. The appraiser must perform the update before the appraisal expiries in order for it to be valid, though. An appraisal update gives you an additional 120 days for appraisal validity. In total, you’d have 240 days to have your loan closed using the current appraisal.
It’s important to note that the FHA only allows updates on appraisals if you meet the following conditions:
- The original appraiser that performed the appraisal also performs the appraisal update
- The property didn’t lose value since the original appraisal
- You can see any ‘new’ improvements made to the home from the street
- The home doesn’t have any visible deficiencies viewable from the street
- The lender orders the update and the appraiser completes it before the expiration of the original appraisal
Ordering a New Appraisal if Original Buyer Falls Through
Just because a buyer signs a purchase contract doesn’t mean he will definitely buy the home. Many factors determine whether a sale gets completed. If it doesn’t, there is still the issue of the completed appraisal.
A little backstory can help you understand how lenders would proceed. FHA loans are assigned a case number. That case number stays with the loan for six months. Because the appraisal is tied to the case number, the appraisal stays with the case number until it expires, or four months. If the appraisal does expire, the new buyer can then order a new appraisal.
The FHA appraisal is an important piece of the underwriting puzzle. Without the right value, you won’t be able to secure FHA financing. Typically, you need 3.5% equity in the home in order to secure FHA financing. Your lender will order the appraisal, but then it’s up to you, the lender, the real estate agent, and the escrow agent to get the home closed before the FHA appraisal expires.