Help!! FHA Underwriting Guidelines - Has this happened to anyone else?

5 Replies

I just received a call from a Buyer's agent regarding "issues" with the FHA underwriting on a rehab under contract. Evidently, my property appraised for more than the sales price, good inspection, financing approved, and the Buyer even wanted to close earlier than planned. However, the FHA underwriter informed the agent that FHA has a maximum percentage increase from the previous sales price to the contract sales price, and since my property was acquired through a tax foreclosure, the previous sales price is showing $0.00. The broker further informed me the FHA underwriter stated they only look back two years for a previous sale - if no transfers, use the appraisal. If sales/transfers within the two years, the property can only increase by X%, and that X wasn't divulged. The broker indicated they had never dealt with a tax deed transaction and was at a loss as to what to tell the Underwriter.

Has anyone encountered this issue, and if so, how was it resolved?


Don't you just love bureaucracy. 

Perhaps if you tell him it was a tax sale they could make an exception and use the Assessed value.  That would be really stupid to use instead of an appraisal, but it might be stupid enough for the underwriter to accept.

Did you do repairs to the property after acquiring? I think this is part of the guideline.

My understanding is that the FHA guidelines say that if the seller is making a 20%+ "profit" from the previous sales price that 2 appraisals are necessary. However, I purchased a home using an FHA loan with this same issue and our lender (Quicken) required us to wait until the sellers had owned the property for 6 months to avoid the 2nd appraisal.

Bottom line: 2 years is excessive. As long the seller has waited the required 90 days, pay for the 2nd appraisal and there should be no issue.  

@Ned Carey   I'm afraid the assessed value on a property acquired through a tax lien foreclosure wouldn't be much more than the $0 they are presently using!

@Samantha Hiscock   You are exactly right!  After I posted my question, I got a follow-up call from the broker telling me pretty much the same thing.  However, what are you referring to when you say " long as the Seller has waited the required 90 days...."? 

If they can't get comfortable with the explanations I'm providing, they will likely require a 2nd appraisal.

To purchase property using an FHA loan the seller must have owned the property for 90 days. So it can't be a "quick" flip, but that is also often the reason for the 2nd appraisal. If the seller had only owned the property between 90 and 180 days usually a 2nd appraisal will be required. After that 6 month mark you should be in the clear and only need 1.

This always happens on flips for FHA loans. The best way to get around this issue is to have a second appraisal. Yes it costs money, but it is the easiest way to deal with this issue. There are other options, I have just found this is the easiest and fastest way to deal with this issue

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