Continuing our series of commonly asked questions, we asked Dallas-based attorney Brandon Pieratt a few questions to help us better understand appraisal requirements for Texas 50(a)(6) home equity loans and Section 50(f)(2) conversion loans.
Brandon, may I use an appraisal waiver when closing a Texas 50(a)(6) home equity loan?
Although not a strict Texas 50(a)(6) home equity loan legal requirement, most secondary market investors do require an appraisal to determine the fair market value of the borrower’s homestead as of the date the loan is closed. In addition, Fannie Mae and Freddie Mac will not purchase a Texas 50(a)(6) home equity loan without a full appraisal, regardless of whether DU allows an appraisal waiver. The same holds true for most other investors.
Furthermore, the title company must delete insuring provision 1(g) from the T-42.1 endorsement unless there is a full appraisal or property valuation. Fannie Mae/Freddie Mac and most other investors require full T-42 and T-42.1 endorsement coverage to purchase a Texas 50(a)(6) home equity loan.
How about Section 50(f)(2) conversion loans? Is an appraisal required?
Unlike a Texas 50(a)(6) home equity loan, most investors do not require an appraisal to purchase a Section 50(f)(2) conversion loan. Typically, DU findings or a Property Inspection Waiver are sufficient. Before ordering or waiving an appraisal, it is recommended that you confirm what your investor requires.
Because there are no special endorsements for a Section 50(f)(2) conversion loan, an appraisal or property valuation is typically unnecessary to obtain title coverage under the loan title policy.
Will an appraisal that reflects the fair market value is “subject to” be acceptable?
For both Texas 50(a)(6) home equity loans and Section 50(f)(2) conversion loans, the 80% CLTV must be calculated based upon the “as is” value of the property at the time of closing. If the appraiser’s “subject to” conditions have been met, such as completion of required repairs, many investors will accept a final inspection report or recertification of value that reflects the conditions have been met and that the “subject to value” is accurate, rather than an updated or new appraisal.