Do I need both an as-is and an as-repaired appraisal for 203(k) loans?

Purchase Transactions
Except in cases of Property Flipping, the Mortgagee (Lender) is not required to obtain an as-is appraisal.  The Adjusted Value is the purchase price less any inducements to purchase.  If an as-is appraisal is obtained, the Adjusted As-Is Value is the lesser of:
  • the purchase price less any inducements to purchase; or
  • the As-Is Property Value
In the case of Property Flipping, the Mortgagee must obtain an as-is appraisal if needed to comply with the Property Flipping guidelines.
 
Refinance Transactions
Properties Acquired Greater Than or Equal to 12 Months Prior to the Case Assignment Date
The Mortgagee must obtain an as-is appraisal to determine the Adjusted As-Is Value when the existing debt on the Property plus the following items exceeds the After-Improved Value:
  • Financeable Repairs and Improvement Costs;
  • Financeable Mortgage Fees;
  • Financeable Contingency Reserves; and
  • Financeable Mortgage Payment Reserves (for Standard 203(k) only).
When an appraisal is required, the Adjusted As-Is Value is the As-Is Property Value.
 
The Mortgagee has the option of using the existing debt or an as-is appraisal to determine the Adjusted As-Is Value when the existing debt on the Property plus the following items does not exceed the After Improved Value:
  • Financeable Repairs and Improvement Costs;
  • Financeable Mortgage Fees;
  • Financeable Contingency Reserves; and
  • Financeable Mortgage Payment Reserves (for Standard 203(k) only).
Existing debt includes:
  • the unpaid principal balance of the first Mortgage as of the month prior to mortgage Disbursement;
  • the unpaid principal balance of any purchase money junior Mortgage as of the month prior to mortgage Disbursement;
  • the unpaid principal balance of any junior liens over 12 months old as of the date of mortgage Disbursement. If the balance or any portion of an equity line of credit in excess of $1,000 was advanced within the past 12 months and was for purposes other than repairs and rehabilitation of the Property, that portion above and beyond $1,000 of the line of credit is not eligible for inclusion in the new Mortgage;
  • interest due on the existing Mortgage(s);
  • Mortgage Insurance Premium (MIP) due on existing Mortgage; any prepayment penalties assessed; late charges; and escrow shortages.
 
Properties Acquired Less Than 12 Months Prior to the Case Assignment Date
For properties acquired by the Borrower within 12 months of the case number assignment date, an as-is appraisal must be obtained.
The Adjusted As-Is Value is the lesser of:
  • existing debt plus fees associated with the new Mortgage; or
  • the As-Is Property Value.
  Existing debt includes:
  • the unpaid principal balance of the first Mortgage as of the month prior to mortgage Disbursement;
  • the unpaid principal balance of any purchase money junior Mortgage as of the month prior to mortgage Disbursement;
  • the unpaid principal balance of any junior liens over 12 months old as of the date of mortgage Disbursement.  If the balance or any portion of an equity line of credit in excess of $1,000 was advanced within the past 12 months and was for purposes other than repairs and rehabilitation of the Property, that portion above and beyond $1,000 of the line of credit is not eligible for inclusion in the new Mortgage;
  • interest due on the existing Mortgage(s);
  • MIP due on existing Mortgage;
  • any prepayment penalties assessed;
  • late charges; and escrow shortages.
 
More Information on HUD’s 203(k) Program see Handbook 4000.1 II.A.8.a. available Online and in Portable Document Format (PDF) at: https://www.hud.gov/program_offices/administration/hudclips/handbooks/hsgh

All policy information contained in this knowledge base article is based upon the referenced HUD policy document. Any lending or insuring decisions should adhere to the specific information contained in that underlying policy document.


Topic Number: KA-02527