An FHA mortgage appraisal is a type of home appraisal completed for Federal Housing Administration (FHA) loans. FHA appraisals are considered more rigorous than standard home appraisals. Whether youâre refinancing or buying a house with an FHA loan â or youâre a seller and your buyer is using an FHA loan â understanding FHA appraisals is key.
Weâll go over FHA appraisals, including why they have stricter requirements and the safety hazards that may result in a home failing an appraisal. Weâll also help identify steps you can take as a buyer, seller or refinancer to help clear the hurdle of stricter requirements.
Getting a mortgage through the Federal Housing Administration (FHA) can be an excellent option for many homebuyers. FHA loans offer low down payments and flexible credit requirements that make homeownership attainable for more people. However, FHA mortgages do come with stricter appraisal standards than conventional loans.
In this comprehensive guide, we’ll explain what an FHA appraisal entails, how strict the requirements are, and what it means for buyers and sellers.
What is an FHA Appraisal?
An FHA appraisal has two main goals:
- Determine the property’s market value based on comparable sales
- Ensure the home meets FHA minimum property standards for safety and habitability
While all mortgages require an appraisal to assess home value, FHA appraisals also scrutinize the condition and livability of the property itself. This helps guarantee homebuyers aren’t purchasing a dangerous or dilapidated home
Why Are FHA Appraisals More Rigorous?
FHA loans are government-insured, so the FHA wants to minimize risk by verifying that properties meet baseline quality standards. Since FHA borrowers only need a 580 credit score and 3.5% down payment, the FHA appraisal provides an extra layer of protection.
Conventional appraisals focus almost entirely on establishing market value. FHA appraisals take that a step further by requiring a detailed inspection for health and safety issues. This underscores the FHA’s role in enabling broader access to homeownership while also preventing borrowers from getting stuck with hazardous properties.
FHA Appraisal Guidelines and Requirements
While FHA guidelines may seem strict compared to conventional loans, they are reasonable and focus on serious deficiencies that endanger occupants. Here are some key areas the FHA home appraisal checks
- Structural integrity: The home must be structurally sound with no major defects.
- Foundation: The foundation should be in good shape with no significant cracks or flaws.
- Roof: The roof must have at least 2 years of remaining life.
- Electrical: Electrical systems should meet safety standards and support household needs.
- Heating: The heating system must be capable of maintaining a temperature of at least 50°F.
- Plumbing: Plumbing systems must be in working order with adequate water pressure.
- Kitchen: Must have adequate space for cooking and preparing food.
- Bedroom egress: Bedrooms must have an emergency exit for fire safety.
This covers some of the main checkpoints, but the full list is lengthy. The bottom line is FHA appraisals verify properties are structurally sound, functionally livable, and free of glaring hazards.
How Strict are FHA Appraisals Really?
Internet forums contain plenty of lamenting about how ridiculously strict FHA appraisals are. But when you examine the guidelines, they focus on legitimate safety issues that any prudent homebuyer would care about.
For instance, requiring adequate heating, electricity, and plumbing seems perfectly reasonable. And most people would likely balk at buying a home with a crumbling foundation or hole-ridden roof.
According to a senior appraiser with over 15 years of experience:
“The notion that FHA appraisals are excessively strict is exaggerated. The guidelines aim to ensure homes are safe, which benefits buyers. In my experience, serious issues are uncommon. And when minor problems do pop up, they can often be remedied.”
So while the guidelines are certainly more rigorous than conventional loans, they are not unduly strict or nitpicky. The fact is FHA appraisals provide homebuyers with meaningful protections they would not otherwise have.
What if Repairs Are Needed?
If an FHA appraisal identifies issues, there is usually still a path forward. The key is determining whether deficiencies are minor and correctable or major and unfixable.
As an example, peeling lead paint on a porch railing would be fixable. But a mildewed crawlspace with extensive structural damage may not be.
For minor issues, either the buyer or seller can make repairs so the deal can still go through. The appraiser will just need to return afterward to verify fixes were completed adequately.
So while FHA appraisals may uncover more problems than conventional ones, repairs can often resolve those problems. This allows deals to stay on track.
Tips for Buyers and Sellers
FHA appraisals add complexity to real estate transactions. Here are some tips for smooth sailing:
For buyers:
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Review the property carefully yourself before making an offer. This allows you to catch and address issues upfront.
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Consider an FHA 203(k) loan that covers purchase price plus repairs.
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Build in contingencies in your purchase agreement so you can back out if unfixable problems arise.
For sellers:
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Take care of any known maintenance items before listing your home. This prevents them from arising later in the appraisal.
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Consider pre-listing inspections to catch issues early when they are easier to remedy.
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Be responsive to addressing appraisal repairs. Quickly fixing problems will allow the sale to continue.
The Bottom Line
FHA appraisals are more rigorous because the loans themselves take on more risk. But the guidelines focus on legitimate hazards and repairs are often feasible. While the process is strict, it ultimately protects homebuyers.
If buyers and sellers educate themselves on what to expect, an FHA appraisal can usually be navigated smoothly. With some care and communication upfront, you can still move forward and close on an FHA home loan even if repairs need to be made.
So take the time to learn about FHA appraisal requirements. But don’t let horror stories leave you feeling defeated. In most cases, you can take proactive steps to clear this hurdle successfully. With an FHA-insured mortgage, you can still achieve the dream of affordable homeownership.
What Is An FHA Appraisal?
An FHA appraisal is very detailed and is performed by an FHA-approved appraiser. If youâre buying a home with an FHA loan or applying for an FHA refinance, you need an FHA appraisal. An FHA appraiser assesses everything a traditional appraiser does, like confirming the market value of a home and evaluating the propertyâs condition, but they also ensure the property meets the FHAâs required safety and livability standards.
Lenders are more willing to offer FHA home loans to borrowers with past credit issues or limited finances because the loans have the backing of the Federal Housing Administration. FHA loans are an incredible resource that allow first-time home buyers to benefit from the loanâs flexible credit requirements and lower down payments.
Because the FHA guarantees your FHA mortgage when youâre ready to buy a new home or refinance your existing mortgage, the agency wants to ensure that borrowers using their loan product to unlock the door to homeownership occupy safe, livable homes. The FHAâs strict appraisal process helps ensure borrowers are purchasing properties that are safe, affordable and worth their investment.
Although the FHA appraisal guidelines have developed a reputation for being unnecessarily strict, the standards have been relaxed. Today, most FHA appraisal requirements are easy to meet or relate to major hazards most home buyers and homeowners shouldnât ignore under any circumstances. An FHA appraisal includes a property inspection, but it isnât as comprehensive as a standard home inspection and typically only points out readily observable problems.
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An FHA appraisal doesnât need to be intimidating. Learn more about the guidelines to better prepare yourself and your home. Weâll take a look at some common questions from buyers and sellers.
FHA Appraisals and Required Repairs: Unlock the Secret
FAQ
Is an FHA appraisal hard to pass?
What will be flagged in an FHA appraisal?
… those that could pose a danger to the residents or those that could pose a serious structural problem, including those that might result in severe damage to …
Will my house pass an FHA appraisal?
FHA appraisal and inspection checklist
Must have an undamaged exterior, foundation and roof. Must have safe and reasonable property access. Must not contain loose wiring and exposed electrical systems. Must have all relevant utilities, including gas, electricity, water and sewage functioning properly.
What are the new appraisal guidelines for FHA loans?
The new guidelines are designed to increase the number of low and moderate-income borrowers who have a lower credit score and cannot qualify for a conventional mortgage. The appraisal guidelines for FHA loans are more strict than for other types of mortgages where a minimum 620 or 640 FICO score is required.
Are FHA appraisals strict or rigid?
There’s a common misconception that FHA appraisals are unnecessarily strict or rigid, and that any inspection “hits” will end your chances of getting a loan. But this is inaccurate. The truth is that most of the common discrepancies identified during the appraisal process are entirely correctable.
Why is the FHA appraisal process so strict?
The FHA’s appraisal process is considered strict to ensure borrowers are purchasing properties that are safe, affordable and worth their investment. Although the FHA appraisal guidelines have developed a reputation for being unnecessarily strict, the standards have been relaxed.
What are FHA home Appraisal Requirements?
FHA home appraisals come with strict inspection requirements for the property’s structure, condition, systems (such as electrical or heating) and fixtures. The minimum property standards for these loans are determined by the U.S. Department of Housing and Urban Development.
Do you need an appraisal for an FHA loan?
Typically, a mortgage lender requires an appraisal of the true value of the home being purchased. This is to ensure the home is worth the selling price. For an FHA loan, this is a requirement by the U.S. Department of Housing and Urban Development (HUD), as well as an inspection of the home’s condition.
Who determines the Appraisal guidelines for FHA home loans?
FHA loans are insured by the capital Federal Housing Administration, which is part of the Department of Housing and Urban Development (HUD). So, ultimately, it’s HUD that determines and enforces all appraisal guidelines for FHA home loans.