This article discusses an appraisal transfer and the process for having these documents sent to a new lender.
When a lender receives an application for a mortgage, they need to go through the process of approving the borrower. They need to make sure that the borrower earns enough money to make the monthly payments. They need to make sure the borrower’s debt load is not too large. They need to verify the borrower has a history of timely, consistent payments.
But the borrower is not the only part that needs to be approved.
The home needs to be approved as well.
The lender needs to verify that the property they are borrowing money against, the house that acts as collateral, is a valuable asset.
One phase for approving a home is the appraisal, which is a professional assessment of the property value.
Usually the process is straightforward and simple. But sometimes there are complications.
Suppose, for example, that a home has been approved for a mortgage (with an accurate appraisal) but the lender does not have a loan option that fits the borrower’s less-than-excellent credit.
So they go to another lender and fill out an application, only to learn that they will need another appraisal.
Why? Because the appraisal is, technically, owned by whoever orders it. In this case, the appraisal from the previous application was ordered by the lender, which means the first lender “owns” the appraisal. The new lender will either need a new appraisal or, a much better (and more affordable) solution, the old appraisal will need to be transferred.
Why are Appraisals Important to Lenders?
It helps to take a step back and examine appraisals and their role in the mortgage-approval process. Mortgages, as we have discussed, are dependent on both the borrower and the home being purchased. In the rare event that a borrower is unable to make payments, the lending institution or bank may need to seize the property. They will take possession of the property, then sell it on the open market (sometimes through an auction) to recover some or all of the borrowed money.
Therefore, the property must have a strong value; this value is determined with an appraisal. The appraisal takes into consideration a variety of factors, but it’s usually a fair assessment of the value assuming neither party (buyer or seller) is under duress. This simply means the owner is not desperate to sell and the buyer is not under extreme pressure to purchase a home.
It might seem like a trivial issue, but a strong appraisal for each and every property is an important tool that can reduce risk to lenders. A lender would rarely let a mortgage go through without an appraisal from a trained professional.
Appraisal Transfer: The Basics
Specific ownership of an appraisal can be surprisingly important when the borrower decides to transfer the application from one lender to another. It’s also important when an application is denied but the borrower is able to find approval with a different lending group.
The problem stems from a simple fact: the lender who ordered the appraisal (and therefore owns the documents) is not the lender who has approved the borrower for financing. The original owner is under no legal obligation to transfer the appraisal. Most lenders will honor the request; it’s a fairly reasonable request after all, and holding the appraisal has no real benefit. There can be times, however, when a lender refuses the transfer.
Here’s a hypothetical situation for how the appraisal transfer might work out…
Suppose Adam is going through the loan process. He has found a home to purchase and fills out an application for a mortgage. During the process, the lender requests an appraisal which he pays for. The appraiser comes back with a number that is satisfactory for making the loan. However, the lender informs Adam that his loan has been denied because his debt-to-income ratio is too high. Adam makes a few phone calls and finds a lender who is willing to issue the loan despite Adam’s high debt load.
But the new lender also needs an appraisal. Adam and the new lender contact the old lender and request the transfer of the original appraisal so Adam does not have to pay for another.
General Requirements for an Appraisal Transfer
To have an appraisal transferred, you and the new lender will need to meet a few different requirements. Each lender, group, and institution is different, but here are a few of the various requirements you might need to meet…
First of all, if the appraisal was for a jumbo loan, you’ll likely need a brand new assessment of the value. Jumbo loans create a lot of risk, so transferring an appraisal is usually not an option.
In most cases, the appraisal will need to be compliant with the new lender’s system. For example, it may need to fit the Uniform Appraisal Dataset. There may be corrections or additions, and the original appraiser will need to agree to provide that data when requested.
Often a transfer letter is prepared. This letter must include the letterhead of the original institution, the current date, the borrower’s name, and the property address. A statement of the transferring appraisal must be made, stating that the transferring ownership of the appraisal is being completed.
There could be other steps, but often the process is fairly simple. If you need help having an appraisal transferred, or if you need a second opinion on your mortgage application, let us help.
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