If you’re considering an FHA loan to finance your home purchase, one of the key steps is undergoing an FHA appraisal. This thorough inspection confirms that the property meets FHA minimum property standards and provides an estimate of the home’s market value.
Knowing what to expect during this important process can help you be prepared and ensure it goes smoothly. In this comprehensive guide, we’ll cover everything you need to know about FHA home appraisals.
Overview of FHA Appraisals
FHA loans are backed by the Federal Housing Administration and require appraisals that follow strict FHA guidelines. Here’s an overview of how they work:
- Performed by FHA-approved appraisers – Only appraisers who are specifically certified by the FHA can conduct these appraisals. They undergo extensive training on FHA requirements.
- Onsite inspection – The appraiser will visit the property in person to evaluate its interior, exterior, fixtures, systems, and overall condition. Photos and detailed notes are taken.
- Verify FHA compliance – The appraiser checks that the home meets all applicable FHA minimum property standards related to safety, security, and livability.
- Determine market value – Thorough market research is conducted to estimate the fair market value of the home based on recent sales of comparable properties.
- Reviewed by lender – Once complete, the full appraisal report is submitted to the lender, who reviews it to decide whether to approve the property and loan.
Why FHA Appraisals Matter
FHA appraisals provide protection for both borrowers and the lender:
- For borrowers, it prevents them from buying a substandard or overpriced property that could be a financial risk.
- For lenders, it ensures the home meets FHA requirements, so they can confidently extend financing to the borrower.
If issues are found, the appropriate repairs can be made before completing the transaction. The appraisal brings peace of mind to all parties.
How to Order an FHA Appraisal
FHA appraisals are usually ordered by the lender after the purchase agreement is signed. Here is the typical process:
- The lender selects an approved FHA appraiser from the HUD roster and assigns the appraisal order.
- You will be required to pay the appraisal fee upfront when applying for the loan. Costs range from $400-$600 on average.
- The appraiser will contact you to schedule a time to visit the property and conduct their inspection, usually within 5-10 business days of being assigned.
- It typically takes another 1-2 weeks after the site visit to receive the complete, detailed appraisal report.
- Your lender reviews the appraisal and contacts you to discuss the results and next steps.
What is Checked During an FHA Inspection?
FHA appraisals are extremely thorough. Here are the key areas and components that will be closely examined:
Exterior
- Roof condition and age
- Siding, brick, and trim for damage or deterioration
- Windows for cracks or missing panes
- Doors and hardware for proper functioning
- Foundation for cracks or shifting
- Driveways, sidewalks, and steps for tripping hazards
- Garage or carport integrity
- Patio, decks, and porches
Interior
- Walls, ceilings, and floors for stains, cracks, or defects
- Doors and windows for damage and function
- Cabinets, counters, and sinks are in good condition in kitchen and bathrooms
- Appliances are operational and adequate for property
- Fireplaces and chimneys are functional and undamaged
- Outlets, wiring, and breaker boxes meet safety codes
- Plumbing and pipes free of leaks and proper drainage
- Heating and cooling systems adequate for home
- Ventilation and insulation in attic space
Overall Property
- No excess clutter, debris, or fire hazards
- Handrails are present where required by code
- No pest or termite infestation
- Compliant with zoning laws for intended occupancy
- Grade and drainage direct water away from foundation.
- Home numbering is clearly visible for emergencies
- Common areas maintained in shared buildings
The appraiser will also check for any smells, sounds, or other indications of problems affecting the home’s safety or structural integrity.
FHA Minimum Property Standards
In addition to the detailed inspection, the appraiser confirms that the home meets HUD’s minimum property standards. The home must:
- Have an undamaged roof, foundation, and structure
- Have a permanent, adequate heating system
- Have proper electrical, plumbing, and sewage systems
- Have potable water supply available
- Have proper ventilation and access to attic space
- Be free of lead-based paint hazards
- Be free of termites and other wood-destroying insects and pests
- Be free of health and safety hazards
- Be structurally sound and livable
- Have legal access to the property
All repairs needed to meet these standards must be completed before closing on an FHA loan.
Reviewing the FHA Appraisal Report
Once complete, you’ll receive a full copy of the appraisal report from your lender. Be sure to review it closely and follow up on any issues or concerns right away.
Pages 1-2 provide an overview and summary of the appraisal results, including:
- Estimated market value of the home
- Date of the inspection
- Basic facts about the property like lot size, square footage, number of bedrooms and bathrooms
- Noted repairs required before the loan can proceed
Pages 3-6 contain a detailed analysis of the property:
- Full descriptions and observations from the inspection
- Explanation for how the appraiser valued the home
- Selection of comparable home sales used to estimate market value
- Appraiser certifications
Carefully reading this report gives you full clarity into the appraiser’s findings and the condition of the home.
What to Do if Repairs Are Required
If repairs are noted as required in the FHA appraisal report, further action will be needed before you can close on the FHA loan:
1. Discuss required repairs with your lender – Ask for specifics on which repairs are mandatory for loan approval versus recommended non-critical fixes. Get written clarification on exactly what the lender requires.
2. Estimate repair costs – Obtain contractor quotes to estimate the costs of completing the necessary repairs. This will impact how you proceed.
3. Negotiate with the seller – Most buyers will request the seller complete or cover the costs of mandatory repairs. Make your request and attempt to get the seller’s agreement in writing.
4. Agree on a repair arrangement – This may involve the seller doing the repairs, you hiring contractors yourself, or funds held in escrow at closing for future repair completion. Consult your real estate attorney for guidance on the best approach.
5. Schedule repairs and re-inspection – Repairs must be completed before loan closing or funds are disbursed from escrow. The appraiser must re-inspect repairs after completion if required by the lender.
Stay in close contact with your lender throughout the process to ensure the appraisal conditions are fully satisfied. This enables your home purchase to proceed as planned.
How to Handle a Low Appraisal
Another potential issue that could come up with your FHA appraisal is if the home value comes in lower than the price you offered. If the appraisal “comes in low,” here are some options:
Ask the seller to reduce the price – This is the simplest solution. Inform the seller of the appraised value and request that they lower the sale price to match it. If they agree, you can close at the new amount.
Appeal the appraisal – You or your lender can formally appeal and request a re-review of the appraisal report. Additional compensation may be provided to contest the value. But appeals are seldom successful.
Pay the difference in cash – If you don’t want to lose the home over the low appraisal, you can cover the difference in value beyond the loan amount with cash. This isn’t ideal, but it could make sense if you love the home.
Walk away from the deal – If paying extra cash isn’t feasible or the seller won’t come down on price, walking away may be your best option to avoid overpaying. You’ll get your earnest money deposit returned.
Always get the lender’s guidance on the best recourse when an FHA appraisal value comes in lower than expected. Don’t overpay just to close the deal.
Can FHA Loans Be Denied Based on the Appraisal?
In certain cases, yes – your FHA loan can be denied entirely if the appraisal uncovers issues that cannot be resolved:
- Structural or foundation damage – Major structural problems or foundation cracking/settling cannot be easily repaired and will cause denial.
- Roof deterioration – Severe leaking or overall poor condition of the roof that is too expensive to replace will not allow loan approval.
- Termite or pest infestation – FHA loans cannot be approved on properties with active termite or pest damage that cannot be fully remediated.
- Construction defects – Pervasive defects like inadequate plumbing, electrical issues, or ventilation problems may be too costly to address and lead to denial.
- Lead paint hazards – Properties with chipping, peeling, or deteriorating lead-based paint must be fully abated to FHA standards or risk denial.
- Hazardous site conditions – Homes near high risk hazards like chemical factories, airports, military installations, etc. may be ineligible for an FHA-insured loan.
- Sewage system failure – Malfunctioning septic tanks or sewage ejector pumps that are too expensive to replace can cause a loan denial.
- Inadequate heating – Homes without an adequate permanent heating system sufficient for the property will fail to qualify.
- Moisture or mold issues – Pervasive moisture or mold problems threatening health and safety could potentially lead to denial in severe cases.
- Access limitations – Inability to legally access the property due to easement restrictions could be grounds for denial.
- Zoning violations – FHA loans cannot be approved on properties with illegal additions or conversions violating local zoning laws.
The key is that any issues limiting the safety, security, or soundness of the home could potentially lead to denial if repairs are not possible to satisfy FHA requirements.
How Long FHA Appraisals Are Valid
FHA appraisals are valid for 120 days, meaning they are good for up to four months after being completed. The 120-day validity period gives you flexibility to close on the home even if there are some delays.
If your closing is postponed beyond 120 days, here is what happens:
- Your lender can request a 30-day extension from the FHA, allowing the appraisal to be used for up to 150 days.
- If more than 150 days pass, a completely new appraisal will be required, at your expense.
- The home will have to once again pass inspection and meet FHA minimum standards before closing.
To avoid having to pay for a new appraisal, try to ensure you close within the approved 120-day window if possible. Let your lender know of any potential delays early on.
Are Manufactured Home Appraisals Different?
Yes, the FHA does have specific manufactured home appraisal guidelines that differ from standard site-built homes:
- Only FHA Roster appraisers certified for manufactured home valuation can do the appraisal.
- The appraisal focuses on both the home structure and the land/site where it is installed.
- A manufactured home title search is completed and verified by the appraiser.
- FHA structural engineering requirements for manufactured homes must be met.
- Comparable sales of other similar manufactured homes are used, rather than site-built homes, to value the property.
In addition, a separate inspection by a HUD-approved inspector will assess the installation and structural integrity of a manufactured home.
Common FHA Appraisal Pitfalls
When going through an FHA appraisal, here are some potential pitfalls to be aware of:
Using non-FHA approved appraisers – Hiring your own appraiser rather than letting the lender choose could disqualify the appraisal. Always verify the appraiser is on the FHA roster.
Attempting to influence value – The appraiser cannot be coerced or swayed. Their valuation must remain completely impartial.
Not scheduling the appraisal promptly – Failing to get the appraisal done quickly could cause major delays in closing if the 120-day validity period expires.
Forgetting to pay for appraisal – You must pay the appraisal fees upfront or the inspection won’t be scheduled.
Neglecting minor repairs – Small issues noted by the appraiser still must be corrected before closing, even if they seem trivial.
Not reviewing the report – Failing to read the report thoroughly could cause unexpected hiccups to come up at the last minute.
Pay close attention to the appraisal process and stay engaged throughout to avoid any unnecessary headaches or delays.
The Bottom Line
While stringent, FHA appraisal requirements are designed to protect homebuyers like you. By fully understanding what to expect from the FHA appraisal process, you can ensure your experience goes smoothly. A carefully inspected home that meets FHA standards will give you confidence and stability for years to come.
FHA Appraisal FAQs
How much does an FHA appraisal cost?
FHA appraisal fees range from $400-$600 on average, varying based on the property location, size, and complexity.
Who pays for the FHA appraisal?
The buyer is responsible for paying the appraisal fee, which is due upfront when applying for the FHA loan.
Can I use my own appraiser?
No, only FHA-approved appraisers on the HUD roster can perform appraisals for FHA loans. The lender selects and assigns the appraiser.
What if repairs can’t be completed before closing?
If repairs are mandatory but cannot feasibly be finished before closing, funds can be held in escrow by the lender and disbursed to pay for repairs after closing.
Will I get a copy of the FHA appraisal report?
Yes, your lender is required to provide you with a complete copy once the appraisal is completed. Always review this in detail.
Can I appeal a low appraisal?
You can appeal an FHA appraisal you feel underestimates your home’s value, but appeals are very rarely successful. It likely won’t lead to a change.
In another related article, A Step-by-Step Guide to Closing on Your New House
