Appraisals: FHA vs. Conventional
Appraisals: FHA vs. Conventional
Once upon a time, there was a difference between an FHA appraisal compared to a Conventional appraisal. For many years, real estate professionals, investors and motivated buyers avoided an FHA loan out of the fear that the appraisal, known for it’s vigorous inspection of the condition of the property, would complicate the transaction and therefore opening preference to a contract offer involving a conventional loan program versus accepting an offer with an FHA loan.
To say it bluntly: That was then, this is NOW! In today’s lending industry, there is no difference between a conventional appraisal when compared to an FHA appraisal. It is an industry wide fallacy that has corrupted the minds of real estate professionals and consumers alike.
The reasons are simple!
Large banks, known as investors, no longer look at Mortgage Backed Securities (MBS) as a free for all and infinite investment with endless opportunities. Most investors are now wanting their MBS portfolios to have substance and strength when buying these loans from companies like Academy Mortgage, who which I work for.
Let me make it simple. If you were an investor, what bundle of loans would you buy?
- A) 7 Properties consisting of 3,000 sq ft structures with 3 of them having mold detected and the other 4 perfectly fine, totaling an amount of $3MM
- B) 8 properties consisting of 2,500 sq ft homes with 2 of them having roof problems, 2 of them with termites, totaling an amount of $2.7MM
- C) 5 Properties consisting of 2,800 sq ft homes that possess no structural damage or deficiencies, totaling an amount of $2MM
It is quite obvious that you would put your money on the properties that provide the least liability (Option C), since it is likely to provide you with less headaches and thus provide you with a likely stronger rate of return on your investment.
Get it? Now I know what some of you might say. Some of this is indeed totally dependent on the lender, the underwriter and what investor we as a mortgage company may sell our loans to.
For instance, if a property has termites and the appraisal does not call on the fact that Termites exist, the underwriter will have no reason to request a Termite Report. There are some lenders that warrant a Termite report on all of their loans regardless of type. Then again some lenders may only be concerned with any issues that are only reported to be a concern on the appraisal. In other words, if the appraisal doesn’t state any issues, then the file gets approved without any further inquiry as to the condition of the property. What it comes down is that each specific lender and their investors have different but similar ways of looking at the appraisal. That is probably the only difference that I could find between a Conventional and FHA appraisal.
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With 11 years in the lending industry, Ted is proficient in structuring the client’s loan to ensure that the client obtains the best financing. He has become a recognized leader in real estate education and hosts real estate seminars for his clients and the business communities in the Southwest. His attention to the details and in-depth knowledge of the loan process ensures that you are getting the best service possible.
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