FHA Appraisal And Inspection

FHA Appraisal And Inspection

This is a complete guide about the FHA inspection process as part of the appraisal and inspection protocols dictated by the Federal Housing Administration.

We will also discuss the related part of the appraisal as well, but we are mostly centered on the FHA inspection and its checklist.

Federal Housing Administration (FHA) loans have requirements, including minimum property standards, which help protect lenders and buyers.

Homes financed with FHA loans must meet safety, security, and soundness standards, which include areas like roofs, electrical, water heaters, and property access, among others.

The FHA does not require the repair of cosmetic or minor defects, deferred maintenance, and normal wear if they do not affect the safety, security, or soundness of the home.

Workarounds for meeting the standards include having the seller make repairs themselves before selling the property.

Alternatively, buyers who can’t qualify for an FHA loan may use another loan product, such as an FHA 203(k) loan, which allows the purchase of a home that has significant problems.

If you are buying or selling a home where an FHA loan is involved, you will need to be prepared for having an FHA inspection on the home. This inspection is paid for by the buyer and is more in depth than a standard appraisal.

A Federal Housing Administration (FHA) inspection is a thorough inspection that is carried out for any property that involves an FDA loan. The main aim of the inspection is to ensure that the house in question has all the basics required for living, such as electricity, access to clean drinking water, adequate heating facility, fire exits, and a stable roof. This provides the buyer with satisfaction that the house he has purchased is worth the price.

If a house does not meet the FHA requirements , then the buyer is not allowed to purchase that particular house and his loan is not granted. One thing to keep in mind is that the buyer is responsible for paying for the inspection of the house.

A licensed U.S. Department of the Housing and Urban Development (HUD) home appraiser must carry out the FHA inspection. The inspector inspects to ensure that the house meets the minimum requirements of the house in terms of structure, safety, and security.

We will help educate you on the FHA inspection and appraisal process. Then, click to connect with an FHA lender who can provide you with a very competitive rate quote in all 50 states.

If you are selling a home and reading this to make sure your home can pass an FHA inspection, we can help with your next mortgage regardless of whether it is an FHA loan, conventional, etc Request a Rate Quote If you are inquiring about the FHA inspection because you are selling your home, we can help you with your next purchase even if you are looking for a conventional loan or some other creative mortgage program.

During this process, the appraiser will look at comparable properties that have sold recently, in the same area as the one being purchased. He will also visit the “subject house” and evaluate it both inside and out. After this review process, the appraiser will write a report to detail his findings. The report will include an estimated value of the home, as well as any required repairs. The report will then be sent to the mortgage lender for review and further action.

FHA mortgages are home loans that allow a lower minimum credit score and down payment than many conventional loans. These loans are funded by a bank or other type of mortgage lender, but backed by the federal government.

In order to purchase a home with this type of loan the property, whether it’s a single-family home, townhouse or a condominium, it must go through the FHA appraisal process.

“In order to back a mortgage, the government needs to make sure the loan is a sound investment, which is why they require a special FHA-specific appraisal,” says Christopher Linsell, real estate coach for The Close. “This appraisal serves two purposes: the first is to assess the market value of the house. The government will want to ensure the loan amount they will be backing is equal to or less than the market value of the home. The second is that they will also want to assess the home’s condition, longevity and livability.”

What Is An FHA Appraisal?

A home appraisal is an estimate of the market value of a property. Since a third party performs the appraisal, the market value is not influenced by the buyer or the seller. An appraisal is a standard requirement for most mortgages and refinances.

Lenders use the estimated market value from the appraisal to determine the loan-to-value ratio of your mortgage . This calculation helps lenders from loaning out more than they are willing to risk and can help limit buyers from borrowing more than the home is worth.

An FHA appraisal also confirms that the property meets the minimum standards set by the U.S. Department of Housing and Urban Development (HUD).

FHA home appraisals require two steps:

Site visit: FHA appraisers visit homes in person to write notes and take photos. They check for the structures quality, the interior and exterior condition, the state of fixtures and systems and the condition of the lot.

Market research: Appraisers research selling prices for comparable homes by reviewing homes that closed in the same general area and typically closed during the past six months. They use their findings from the site visit to estimate the market value of the home.

The FHA appraisal process is unique in that the appraiser basically performs double-duty as both an appraiser and an inspector.

When you use a Conventional loan to buy a house, your appraiser is mainly concerned about the current market value of the property. But when you use a federally-insured FHA loan, the appraiser has two objectives: Determine the house’s value, and inspect it to make sure it meets minimum standards for health and safety set by the Department of Housing and Urban Development (HUD).

The real difference between the two is the level of inspection that HUD requires in order to fund the loan.

If the FHA appraiser flags certain issues peeling paint, loose handrails, or other safety issues the loan is put on “hold” until they’re fixed. That’s not the case with a regular appraisal used for a Conventional home loan.

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While a standard non-FHA appraisal only determines the true market value of a home, an FHA appraiser also inspects the entire property for safety and soundness standards.

The FHA appraisal’s main purpose is to protect the seller by verifying that the selling price of the house is at least worth the home value. A HUD-approved home appraiser, to inspect the whole house and then judge if the house is worth the selling price, conducts this.

Usually, the inspector compares houses recently sold in that area, similar to this one particular house in question, to get an idea of the house value. A house, in the same area, having the same number of bedrooms, bathrooms, and other similar features can be compared to the house being inspected. This helps to give a better market value for the house.

To sum it up, the FHA appraisal helps in determining the value of the property, and if the house meets, the minimum requirements set up by the agency.

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mortgage lender requires an appraisal of the true value of the home to be purchased. This is to make sure the home is worth the selling price. For an FHA loan , the U.S. Department of Housing and Urban Development (HUD) requires this, plus an inspection of the home’s condition. In order to pass inspection, the home must meet minimum safety, security and soundness standards.

An FHA inspection is conducted by a licensed, HUD-approved property appraiser. Generally speaking, the home must reasonably protect the safety and health of its occupants and adequately support the protection of their property. In addition, its structural integrity can’t be in danger of being compromised.

The inspector determines whether the property meets these standards and reports it on an FHA form. For detached single-family homes , the inspector uses the Uniform Residential Appraisal report. Here, the inspector also lists whether any particular issues must be remedied before the HUD can approve the loan.

As far as appraising the home’s value goes, the HUD-approved inspector will do what’s normally done. He’ll compare the house to similar property that sold recently in the area. But keep in mind health and safety concerns are the most important part of the process here as far as the FHA and HUD are concerned.

Once this process is complete, the inspector sends a form to the lender for further evaluation. And once the lender gives its approval, the FHA loan moves forward. However, if the inspector finds problems, they need to be addressed before the bank can approve the loan. So knowing what the inspector looks for will help expedite the loan process.

FHA Appraisal Requirements for Homes and Condos

An FHA appraisal confirms that your home will qualify for an FHA loan. It’s not an inspection, but the FHA appraiser will check for structural soundness and safety.

To use an FHA loan, both the borrower and property must meet certain criteria.

You’ll have to satisfy your lender’s financial requirements, and the property will have to satisfy the FHA home requirements set by the Department of Housing and Urban Development, or HUD.

All homes are held to HUD’s “minimum property requirements,” and new construction must also meet the agency’s “minimum property standards.” FHA property rules ensure that the home is structurally sound, livable and worth at least as much as you plan to borrow.

The 2020 FHA appraisals guidelines establish the following requirements:

All loans insured through the FHA must be appraised by a licensed appraiser approved by HUD.

The appraiser must visually inspect the interior and exterior to complete the appraisal checklist on the VC form.

They must photograph the front, back, and sides of the property, noting any improvements made that increase the value.

Any comparable sale transaction being used to support the appraisal must also be photographed.

A copy of a street map showing the location of the property and each comparable sale.

FHA Inspection Checklist: What Does an Appraiser Look for in an FHA Inspection?

An FHA appraiser goes through the house while documenting its structure and other key details such as its layout. He’ll also keep an eye out for particular hazards that must be taken care of before an FHA loan will be approved on the property. We describe some of these below:

Roofing: The roof must be sturdy enough to reasonably last two to three years and it must keep moisture out. In addition, the roof can’t have more than three layers. If it does and the appraiser finds enough damage, they would require a new roof.

Structure: The overall structure of the property must be in good enough condition to keep its occupants safe. This means severe structural damage, leakage, dampness, decay or termite damage can cause the property to fail inspection. In such a case, repairs must be made in order for the FHA loan to move forward.

Heating , water and electric: Each inhabitable room must have an adequate heating source. However, certain exceptions apply in areas that experience mild winters. In addition, the water heater must adhere to local building codes. Furthermore, electric boxes can’t have damaged or exposed wires.

Safety hazards: An appraiser would inspect the property for potential safety hazards such as asbestos. In the event that the inspector finds asbestos that may be damaged, an asbestos expert must conduct another examination. Some hazards are not obvious such as contaminated soil.

Heavy traffic

Proximity to an airport, high-voltage power lines, radio or TV transmission towers

Relation to a high-pressure petroleum line and other sites with potential for explosion

Proximity to different sources of excessive noise

Oil and gas sources on property

Access: To pass inspection, the home must provide access to pedestrians and vehicles, particularly emergency vehicles. These must be able to access the home under all weather conditions.

Purpose For The FHA Appraisal And Inspection

The purpose of an FHA appraisal includes the following:

Analyzing the site of the property The appraiser analyzes the site, which includes the location’s topography, the suitability of the soil, encroachments, and other properties adjacent to the area.

Assessing the livability of the house This includes assessing the above ground and basement areas, the structure and functionality of the property in general. Furthermore, the property is checked for any hazards.

Estimating the market value of the property The appraiser analyzes similar properties in the area to help determine an estimate for the property being sold.

Evaluating the physical condition of the property The appraiser does this by documenting all the repairs deemed necessary for the house. He completes the Valuation Conditions (VC) form.

Assessing the longevity of the property This is important for a long-term mortgage.

Difference Between FHA Appraisals And Appraisals In Conventional Home Loans

Homebuyers and homeowners are often surprised to find that FHA appraisal guidelines include detailed instructions for inspecting the property. This is different from a standard appraisal, where the appraiser mainly wants to know what the house is worth. When a Federal Housing Administration home loan is being used, the appraiser basically has to perform double duty.

Here are the primary differences:

Conventional: In a typical real estate transaction, where a conventional (non-government-insured) home loan is being used, the appraiser is mostly concerned with the current market value of the property in question. That is his primary objective when visiting the house. He is only concerned with the condition of the property as it relates to the value.

FHA: When an FHA loan is being used, the appraiser has two objectives. The Department of Housing and Urban Development (HUD) requires him to determine the current market value, as with any appraisal.

It’s used to make sure that the loan-to-value ratio (LTV) after you buy the property represents an acceptable risk for the lender and the FHA as the mortgage investor.

But they also require a property inspection to make sure the home meets HUD’s minimum standards for health and safety. This is the “double duty” mentioned earlier. It’s what makes the FHA appraisal process unique.

So the primary difference between FHA and regular appraisals is the level of inspection that is required by HUD. If the HUD-approved appraiser flags certain issues — such as peeling paint, loose handrails, or other safety issues — those issues must be corrected before the loan will be funded. In other words, the transaction will be put on “hold” until the discrepancies are resolved. That is not the case with a regular appraisal used for a conventional home loan.

Home buyers would be wise to have a complete “regular” home inspection separate from the “health-and-safety” inspection conducted by the FHA appraiser. HUD actually encourages this. All borrowers who use this program have to sign a disclosure that says, “I understand the importance of getting an independent home inspection. I have thought about this before I signed a contract with the seller for a home.” To clarify: HUD requires an appraisal (with a built-in health-and-safety inspection). They do not require a regular home inspection — but they strongly encourage it. This is a source of common confusion among buyers and sellers alike.

What is the Difference Between an FHA Inspection and an Appraisal?

The main difference between an FHA inspection and FHA appraisal is that the FHA inspection is a very thorough analysis of the house that helps to determine the condition of the home, whereas the FHA appraisal helps in verifying the value of the house.

The FHA inspection involves the overall inspection of the house to determine the condition of the property being sold. It provides the buyer with great insights into the condition of the property, to help him to make the right buying decision. Generally, FHA inspections are not required for getting an FHA approved mortgage plan.

On the other hand, the FHA appraisal is done by comparing similar properties in the area to the house being bought. This helps to determine the market value of the house. The FHA loan program does require a property appraisal to be conducted by a licensed HUD appraiser. The appraisal is a written thorough assessment of the property, performed during the mortgage approval process.

An FHA inspection is an in-depth analysis of the home. It is looking for structural issues, hazards, and makes sure the home is in good livable condition while meeting the FHA minimum property standards. The FHA inspection also verifies the true market value of the home.

A standard non FHA appraisal simply verifies that the home value is at least as much as the selling price by determining the true market value. Although the appraisal protects the buyer, its true intent is to protect the lender.

An FHA insured loan will require you to have the FHA inspection and appraisal. Read our article on FHA approved homes for more details on what is needed to meet the minimum property standards.

Mortgage lenders will need a home appraisal to assess the value of the home you’re buying. An appraisal is part of the borrowing process just like checking your credit score or debt-to-income ratio.

But this appraisal will not reveal specific details about the condition of the home. A home appraisal will be more concerned with the home’s location, size, and general condition.

Unlike a home inspector, the appraiser will not crawl around in the basement or climb onto the roof searching for problems.

The FHA’s Minimum Property Standards

Requirements protect borrowers and lenders Homebuyers looking to finance a home purchase with a Federal Housing Administration (FHA) loan are sometimes surprised they are not allowed to purchase a particular property because it doesn’t meet FHA requirements for a property.

The FHA has put these minimum property standard requirements into place in order to protect lenders, but they protect buyers, too.

Department of Housing and Urban Development (HUD), the FHA requires that the properties financed with its loan products meet the following minimum standards:

Safety: The home should protect the health and safety of the occupants.

Security: The home should protect the security of the property.

Soundness: The property should not have physical deficiencies or conditions affecting its structural integrity. 1

Missing handrails

Cracked or damaged exit doors that are otherwise operable

Cracked window glass

Defective paint surfaces in homes constructed post-1978 (because of lead paint hazards)

Minor plumbing leaks (such as dripping faucets)

Defective floor finishes or coverings (worn through the finish, badly soiled carpeting)

Evidence of previous (nonactive) wood-destroying insect/organism damage where there is no evidence of unrepaired structural damage

Rotten or worn-out countertops

Damaged plaster, sheetrock, or other wall and ceiling materials in homes constructed post-1978

Poor workmanship

Trip hazards (cracked or partially heaving sidewalks, poorly installed carpeting)

Crawl spaces with debris and trash

Lack of an all-weather driveway surface

An appraisal is valid for 120 days but can be extended under certain circumstances for example, if the borrower signed a sales contract before the appraisal’s expiration date, it can be extended for 30 days. 4

Source: investopedia.com

The FHA inspects the property for the health and safety of the occupants. Over the years, the FHA team has become lenient with their inspections. The FHA can still grant loan if the inspectors notice any fixable damages (discussed under the next heading).

However, if there are significant repairs that must be carried out, the FHA loan will not be accepted until the final inspection has been carried out. For example, if the room does not have any windows or doors, the FHA will not process the loan further until these repairs have been made.

The HUD minimum property standards must be met for the FHA loan to pass. The defects that the FHA can overlook have been discussed in the heading below.

Source: ecodocspro.com

When a homebuyer takes out a mortgage, the property serves as collateral for the loan. In other words, if the borrower stops making the mortgage payments, the mortgage lender foreclose and take possession of the house. The lender will then sell the house as a way of reclaiming as much of the money still owed on the loan as possible.

Requiring that the property meet minimum standards protects the lender. It means that the property should be easier to sell and command a higher price if the lender has to seize it.

At the same time, this requirement also protects the borrower: It means they will not be burdened with costly home repair bills and maintenance from the start. In addition, with a fundamentally sound place to live, the borrower may have more of an incentive to make their payments in order to keep the home.

Source: investopedia.com

The home must be complete and “marketable” – The interior and exterior should be a complete home. If the kitchen is not complete, or other structures are not present, it will not meet the FHA home requirements.

Must be accessible – The property should have public access and not require trespassing on private property to enter.

Safe Access – The home should be safe to access from a public road.

Free from Hazards – The property should be free from any hazards such as lead-based paint, visible electrically wiring, etc.

Source: thelendersnetwork.com

FHA Appraisal Checklists

A Federal Housing Administration (FHA) appraisal checklist is a tool used by HUD-approved property appraisers to have a current estimated market value of the property. This includes livability factors such as access to transport, health care, education and more. It helps to assess the property condition such that it meets FHA minimum standards to protect the lender and avoid numerous repair needs for the homebuyers. Conducting an appraisal helps verify important information of the property and gives transparency to the stakeholders. The HUD sorted the minimum property standards into 3 parts, safety, security, and soundness. Remember the 3 S when filling out a FHA appraisal form.

1. Safety

Appraisers should inspect the level of risks to ensure homebuyers/occupants are being protected from non-desirable outcomes. Below health and safety information should be checked:

Environmental hazards and health risks;

Structural integrity of the home;

Electrical installation and utilities; and

Lead-based paint and other chemical hazards

Source: safetyculture.com

Safety

The appraiser inspects for any risks that could be associated with the house, for the safety of the occupants. These hazards are associated with:

The structural integrity of the house

Electrical installation and utilities

Lead-based paint and other chemical hazards

Environmental hazards and health risks associated with the house

Source: ecodocspro.com

2. Security

Assessing the market value of the property secures the lender to preserve the profit as the property serves as collateral for the loan. The following FHA inspection items are checked to validate the security of the property:

Physical and visual condition of the property;

Grading and drainage problems;

Water Supply shortage;

Road accessibility

Source: safetyculture.com

Security

The appraiser validates the security of the house by:

Inspecting the physical and visual condition of the property

Drainage problems

Water supply issues

The condition of the septic tanks

Road accessibility

Source: ecodocspro.com

3. Soundness

Appraisers should ensure the property doesn’t have any physical deficiencies or conditions that will affect its structural integrity. Below FHA home inspection list is assessed to check for damages and repair needs.

Property Disturbances such as sinkholes or natural depressions;

Large or multiple cracks in the floor and walls of the property;

Poor ventilation systems;

Roof and gutter leaks

Meeting the minimum standards helps homebuyers control additional costs for extensive damages and repair needs. While for lenders, it ensures deterioration doesn’t cut into the value of the home if the borrower defaults on a mortgage and reduces the risk of paying insurance claims.

Is It Hard to Pass a FHA Inspection?

As long as the property meets the 3 minimum standards set by the HUD, it shouldn’t be hard to pass a FHA inspection. To increase the property’s chances of passing, prepare for the FHA inspection in advance. Check the property for hazards, broken systems or parts, and quality issues. Consider doing a mock FHA inspection to capture and resolve all of these problems before the actual inspection.

Should I Worry About an FHA Appraisal?

If you’re confident about the property’s safety, security, and soundness, then you have nothing to worry about. But it still helps to double-check everything before the FHA appraisal to ensure that the property passes and no further repairs are needed.

If in doubt, consider hiring a third-party inspector to assess the property’s condition based on HUD standards. If the property passes this inspection with flying colors, then you shouldn’t worry about the FHA appraisal. If the property fails the inspection or the third-party inspector flags some items, then you have the opportunity to fix these issues before the official FHA appraisal.

FHA Inspection Mobile App FHA appraisal and inspection reports require significant photo evidence along with detailed notes of the property to be provided to the lenders.

Soundness

The appraiser checks for any damages that may require repairs. This includes the inspection of:

Any pest infestation

Roof and gutter leaks

Poor ventilation system

Any cracks in the floors and walls of the house

Sinkholes, natural depressions, etc.

Source: ecodocspro.com

How does the FHA appraisal work?

An experienced FHA-approved appraiser will visit the property to inspect its condition, including its interior, exterior and surroundings.

The appraiser will take photos to document the property’s condition and, in the case of a single-family home, complete a form called the Uniform Residential Appraisal Report, which outlines the various features of the property. For a condominium, the appraiser will complete a Condominium Unit Appraisal Report.

In addition to reviewing the home’s condition, the appraiser will provide the FHA with an opinion regarding the property’s market value.

If the property examination reveals issues that do not comply with HUD’s acceptability criteria, the appraiser must indicate the exact repairs necessary and provide the approximate cost to fix the problems.

In some cases, an FHA appraiser is not able to determine whether a property truly meets HUD’s standards, and the mortgage lender may call upon another qualified inspector to review the property as well.

Source: bankrate.com

How FHA Appraisals Work

An FHA appraisal, and really any home appraisal , has two primary purposes: providing a value for your home and doing some basic safety inspections. There are some special things that may happen with an FHA appraisal, but the process isn’t fundamentally different from any other mortgage We’ll go deeper on exactly how this works in subsequent sections, but property is assigned a value to make sure that the lender isn’t making a loan for more than the property is worth. The reasoning for this is that if you default on the loan, your lender has to try to sell the property to get as much money as they can for the investors in your loan. No one goes in thinking that’s going to happen, but mortgage investors plan for worst-case scenarios.

If you’re a home buyer, the valuation also prevents you from overpaying for your home. You’ll know exactly the current market value of the home.

The safety checks have to do with whether the property is move-in ready. If there are exposed floorboards or the utilities don’t work, that can be a health and safety issue. We’ll get into some FHA specific standards a little bit below.

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How an FHA appraisal works

Deciding whether or not a property meets the FHA home requirements is up to the appraiser. The lender gets to select the appraiser, but the borrower usually pays for their services.

Source: nerdwallet.com

What are the FHA’s appraisal requirements?

With conventional financing, the lender orders an appraisal to determine the market value of the home. However, with an FHA loan, the appraisal serves two purposes. In addition to establishing the value of the property, an FHA appraisal determines whether the home meets the agency’s minimum property requirements.

An appraisal is a written assessment of a property performed during the mortgage approval process. To determine if the property is eligible for financing, the appraisal accomplishes the following:

Estimates the market value of the property. FHA uses the estimate to confirm the home is worth the amount it is guaranteeing.

Evaluates the physical condition of the property. The appraiser will complete a Valuation Conditions (VC) form, documenting any necessary repairs.

Assesses whether the property is free of hazards, odors, physical defects noise.

Assesses the longevity of the property. The expected life of the property must warrant having a long-term mortgage,

Analyzes the site of the property. The appraiser will provide an analysis of the site, which includes the topography of the location, suitability of soil, easements, encroachments and the areas adjacent to the property.

Assesses the livability of the home. The appraiser will analyze the above-ground and basement living areas, the overall structure and functionality of the property.

Generally, the appraiser will look for things that may have the following effects:

adversely affect the physical condition of the property

endanger the health and safety of occupants

affect the livability and marketability of the home.

FHA-approved appraisers perform the assessments and follow specific guidelines when evaluating the property. During the appraisal, they will:

Visually inspect the interior and exterior of the property and complete the VC form.

Photograph the front, back and side of the property including any improvements that affect the value.

Source: valuepenguin.com

FHA Appraisal And Inspection Requirements

If you’re looking for a checklist of things to do to prepare for an appraisal, the good news is there’s not a whole lot you have to prepare for. The appraiser does the hard work.

The one thing you’re going to want to really make sure of is that they have access to the areas they need to check out. It doesn’t hurt to tidy up your house. Your home should never be appraised based on cleanliness, but there should be clear walkways to get between rooms and such.

If you have pets who don’t handle strangers well, consider leaving them in their crate or having a trusted friend or family member watch them for a few hours.

Finally, there’s the pandemic corollary, because there is no playbook for what we’re living through. Don’t be alarmed if an appraiser uses personal protective equipment or asks you to mask up/keep a distance. They may decide that it’s better if you walk through the house with them flipping switches and switching on the tap than for the appraiser coming in as an outsider and touching everything in your house.

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FHA Apprisal Process

All FHA loans require a home appraisal and inspection prior to closing. The FHA appraisal determines the market value of the property. Lender use the appraisal to calculate the loan-to-value ratio (LTV ratio) . The maximum LTV ratio for FHA mortgages is 96.5%.

A licensed FHA home appraiser will determine the market value of a property by looking at comparable home sales in the area. The square footage, home condition, number of rooms and bathrooms, and special features.

Source: thelendersnetwork.com

FHA Inspection Checklist

During the inspection, the appraiser will address multiple aspects of the property as required by FHA. These items make up the minimum eligibility requirements for an FHA-insured loan. Here’s a checklist of what an appraiser will be looking for.

The property must be a single real estate entity

The property must be free of hazards and conditions that pose a risk to the health and safety of the occupants or adversely affect the structural soundness and use of the home

The septic system (if present) must be functional

Property must be free of soil contaminants

No underground storage tanks

Site must adequately drain water away from the perimeter of the walls

Must have an acceptable and sufficient water supply

Must have safe and sanitary sewage disposal

No evidence of termite infestation

Property must have safe and adequate access to cars and pedestrians from a public or private street

Presence of any defective conditions, including but not limited to, poor construction, leaks, decay (A property with any defected conditions is considered unacceptable until the defects are corrected.)

Natural and adequate ventilation of attics and crawl spaces

Foundations must be in good condition

Property must have sufficient access to the crawl space

Roof must be in good condition and prevent moisture from entering the home. (If re-roofing is needed, FHA requires specific guidelines.)

Mechanical systems must be safe, protected from destructive elements, functional, durable and of decent quality

Heating sources must be safe, functional and meet any local requirements

Electricity must be available for lighting and any equipment used

Additional health and safety hazards, including but not limited to, broken windows, blocked doors or steps without a handrail

No presence of lead-based paint

The appraiser will note the condition and defects of each item, if applicable, as they complete the VC Form. The lender will use the results of the appraisal and inspection to determine the eligibility of the property.

In addition to the items the appraiser is responsible for observing, the lender has other eligibility criteria that they require:

Adequate space must exist between buildings to allow the maintenance of the exterior walls

If property has multiple units, each living unit must be able to be maintained separately

If property has multiple units, Each living unit must have separate water, sewer, gas, electricity and shut-offs meters

Access to the property must be provided without having to go on to another site

Source: valuepenguin.com

FHA Inspection Checklist

The FHA inspector will be looking at the following during the inspection process:

In Every Room – The following applies to every room in the home.

Check whether the room has electricity and its condition

Window condition

Ceiling condition

Wall condition

Floor condition

Security

Presence of lead-based paint

Bathroom – The items below are unique to the bathroom portion of the inspection

There must be a toilet and in good working condition with no leaks

There must be a sink and in good working condition with no leaks

There must be a tub or shower and in good working condition with no leaks

There must be ventilation – can be an exhaust fan or window

Kitchen – The items below are unique to the kitchen portion of the inspection

Stove or range with an oven in good working condition

Refrigerator in good working condition

Any other appliances included must be working

Sink in good working condition and with no leaks

Room for storage, food preparation and the serving of food

Exterior of the Home

Condition of foundation

Condition of stairs, railings and porches

Condition of roof and gutters (maximum of 3 layers on the roof)

Condition of siding

Condition of the chimney

Lead paint on exterior surfaces

Swimming pool (if applicable) must be in working order and adhere to local ordinances

Heating and Plumbing

Heating unit is adequate and in good working condition

Ventilation and cooling

Water heater in good working condition

Approved water supply (city sewer or well)

Plumbing must exist and be in good working condition

Sewer connection either to city sewer or an operable septic system

General Health and Safety

Working smoke detectors in the home

Access to home for first responders

Fire exists

Pest infestation

Garbage and debris

Refuse disposal

Stairs and common hallways must be adequate

Elevators (if applicable) must be safe, inspected and working

Interior air quality

Site and neighborhood conditions (no nearby hazards)

Lead-based paint owner’s certification

When the inspector is reviewing the list above, he or she will be making notes on their checklist indicating the presence of these conditions as well as any repairs that may be needed.

Encroachment No portion of the dwelling or improvement may encroach onto a neighboring property. In similar fashion, a neighbor’s structure may not encroach onto the property you are purchasing. These issues must be resolved before closing.

If the encroachment is due to a fence, that fence may remain as long as it does not negatively impact the value of the home.

Source:  

Checklist of FHA appraisal requirements

FHA appraisers follow the HUD guidelines for minimum property standards. Homes must meet the following appraisal requirements, or be repaired to meet requirements, to be approved for an FHA loan:

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 be free from damaged underground storage tanks and soil contaminants

Must have a working, permanent heating system that can heat the property adequately

Must have surfaces free of chipping or peeling lead-based paint

Must have adequate access to attic spaces and natural ventilation in crawl spaces

Must have access to clean water

Must be free from wood destroying insect infestations

Must have working utilities, such as water and heat

Must not have interior and exterior health and safety hazards, such as no handrails on steep staircases

Must be a marketable property

Source: chase.com

FHA Home Inspection Checklist

During an FHA home inspection, the appraiser will inspect and note major safety concerns. Here is a checklist of common items an FHA appraiser looks for:

Source: cardinalfinancial.com

Home Inspection Checklist

Foundation – Ensure that the foundation is stable. No cracks in the foundation and walls. Drainage Check that water is flowing away from the foundation.

Roof – Is the roof in good condition with several more years left before it needs replacing. Asphalt shingles have a lifespan of 15-40 years.

Exterior -The exterior of the home should be in good condition. There should be no rotting wood, cracks in the brick, worn out weather seals.

Interior – Check the ceilings, walls, doors, and baseboards. Is everything in acceptable order for you. Electrical All electrical outlets and lights must function properly.

Water sprinklers – If the property has a sprinkler system installed all zones must be tested to ensure functionability.

Air conditioning and heater – Heating and air condition systems must be inspected to ensure they are completely operational.

Appliances – All home appliances must be tested to ensure they work properly.

Odor – If the home smells, people assume it was the previous owners, not the smell of the house itself. Make sure all areas of the home are dry, and nothing is leaking. Wet areas can cause musty smells.

Termite Inspection – Interior and exterior of the home should be inspected for termites. Existing termite treatment systems should be checked.

Mold Inspection – The home must be 100% free of mold.

Water Heater – Water heater must be tested to ensure it is functioning properly.

Source: thelendersnetwork.com

FHA appraisal checklist

You can find a complete list of FHA appraisal guidelines in HUD’s single-family policy handbook . But, fair warning, it’s pretty dense reading. Here are some of the highlights:

The foundation must be structurally sound.

Water must drain away from the foundation.

Utilities, including water, sewage, heat and electricity, must be turned on during appraisal.

All appliances must function properly.

Water pressure must be adequate, with hot and cold water available.

Paint cannot be chipping, peeling, flaking or otherwise defective.

Electrical outlets and switches must function properly.

Windows must open, close and lock.

Roofing cannot leak and must have at least two years of life remaining.

Attics and crawl spaces must have vents and be free from damage.

No active termite infestation.

The property must be reasonably free from environmental hazards, odors and excessive noise.

How to avoid common home buyer mistakes

Source: nerdwallet.com

Property access

The property must provide safe and adequate access for pedestrians and vehicles, and the street must have an all-weather surface so that emergency vehicles can access the property under any weather conditions.

Source: investopedia.com

Property Access

There must be safe and adequate access for pedestrians and vehicles near the house. The roads around the house must have an all-weather surface, to ensure that the house can be accessed under any weather conditions.

Source: ecodocspro.com

Encroachment

The neighbor’s structure must not encroach onto the property you are about to purchase. Similarly, any of your future property structures must not encroach the area of your neighbor’s. Encroachment due to a fence may remain there, as long as it does not have any negative impact on the value of the house.

Source: ecodocspro.com

A: Inaccessible by foot or vehicle

All roads must have access for vehicles and pedestrians.

Source: process.st

B: Accessible only by private road

Recorded easements should be revealed by a title search. It is the responsibility of the DE Underwriter to determine whether there is evidence of a permanent easement within the records.

Source: process.st

C: All weather surfaces

The FHA defines an all-weather surface as one which can be used all year round by the normal vehicles of emergency services.

For example, grass would not count but gravel would just.

Source: process.st

A: Connection to public water

A “Yes” response will require that the lender performs water testing on the property.

Source: process.st

Structural soundness

Any defective structural conditions and any other conditions that could lead to future structural damage must be remedied before the property can be sold. 6 These include defective construction, excessive dampness, leakage, decay, termite damage, and continuing settlement.

Source: investopedia.com

Structure

The overall structure of the house should be such that it can keep all its occupants safe. The appraiser must check for the following:

Severe structural damage

Dampness in the house or the exterior of the house

Any leakages

Any decay

Any termites

Source: ecodocspro.com

A: Ground level structure and wood touching ground

If the answer to this is “Yes” then a termite inspection is required.

In the case of condominiums, a termite inspection would only be required for the first-floor units.

The key elements to check to uncover potential termite presence include but are not limited to:

Mud tunnels up the side of the building

Swarms around wooden structures

Small collections of wings around windows and windowsill areas

Excessive dampness

Areas where vegetation has died

Source: process.st

Every Room

Whether each room has electricity

Whether each room has a window or door to the exterior to be used as a fire escape

Source: cardinalfinancial.com

In Every Room

This checklist applies to all rooms of the house. This checklist includes details about the following:

The presence of electricity and its condition in every room

Condition of the windows

Condition of the ceiling

Condition of the walls

Condition of the floors

Security condition

Presence of lead-based paint in the house

Source: ecodocspro.com

J: Appropriate ventilation

This ventilation could be in the form of vents, fans, or windows.

Source: process.st

Electrical and heating

The electrical box should not have any frayed or exposed wires.

All habitable rooms must have a functioning heat source (except in a few select cities with mild winters).

Source: investopedia.com

Electrical and Heating

The FHA checklist checks for the following:

There must be no exposed or broken wires in any area and electric boxes

There must be no fluctuation in any area of the house

The heating system must be working adequately, and undergo regular maintenance

Areas with cold winter months must have a fully functional heat source in all the habitable rooms

Source: ecodocspro.com

VC-10 Mechanical Systems:

The appraiser must inspect all the appliances present in the property.

This will involve turning the appliances on and monitoring them while in use to make sure they are in full working order.

Source: process.st

General Health and Safety

Foundation or structural defects

Whether the utilities (water, sewage, heat, and electricity) all work

Chipped or peeling paint in homes built before 1978

Incomplete renovations

Water damage

If the property is accessible to vehicles, especially emergency vehicles

Exposed wiring and uncovered junction boxes

Whether the house is too close to outside hazards, such as a leaking oil tank or a waste dump

Excessive noise, such as being close to an airport

Missing handrails

Source: cardinalfinancial.com

Asbestos

If an area of the home contains asbestos that appears to be damaged or deteriorating, the FHA requires further inspection by an asbestos professional.

Source: investopedia.com

Asbestos

The FHA appraiser inspects age asbestos present in the house. If it is found to be damaged, the FHA appraiser must call for an asbestos professional to inspect the asbestos further.

To sum it up, the FHA appraisal looks for the following:

Any leakages

Termites

Decay

Any environmental hazards

Excessive dampness

Defective construction

Presence of lead paint

Functional appliances

Availability of hot water

Proper drainage solutions

Adequate electricity and lighting

Solid foundation

Safe sewage disposal

Availability of safe and potable water with adequate pressure

Source: ecodocspro.com

VC-1 Location Hazards And Nuisances:

Section VC-1 pertains to general potential problems within the immediate location of the premises.

Source: process.st

I: Overhead high voltage transmission lines

Low voltage lines must also not directly pass over living spaces including pools of the property being insured by the Department of Housing and Urban Development.

Source: process.st

B: Connection to public sewerage system

If a connection to a public sewerage system is feasible then said connection is mandatory.

Source: process.st

Hazards and nuisances

A number of conditions fall under this category. They include, but are not limited to, the following:

Contaminated soil

Proximity to a hazardous waste site

Oil and gas wells located on the property

Heavy traffic

Airport noise and hazards

Other sources of excessive noise

Proximity to something that could explode, such as a high-pressure petroleum line

Proximity to high-voltage power lines

Proximity to a radio or TV transmission tower

Source: investopedia.com

Hazards and Nuisances

These factors are generally seen as hazardous. These include the following:

Proximity to any explosive material, such as a high-pressure petroleum line

Proximity to high voltage power lines

Proximity to a TV transmission tower or radio station

Proximity to any oil or gas wells located near the house

Heavy traffic in the area

Airport noise and hazards

Other sources of excessive sound, causing noise pollution

Presence of contaminated soil

The above-mentioned factors are also useful in assessing the location of the property.

Source: ecodocspro.com

Non-Permitted Additions

If the seller has another structure on their property, this could be a big safety issue, and the loan approval process may be delayed if not up to code. If the additions are not up to code, it is said to be a danger. It may need to be removed, or repairs may need to be made before your loan is approved.

Common Problems found during FHA Home Inspection

Faulty wiring. Outdated and worn-out electrical systems are the most common problem, especially in older homes.

Roof problems. A common issue is worn-out roofs that need to be replaced.

Plumbing issues. Worn out pipes and repairs needed to toilets.

Small items were not replaced by the previous owner that could mean big problems in the future.

Air Conditioning and Heating Systems. Systems that were not installed correctly or not maintained are another problem you need to watch out for

Minor Structural issues. Drainage. The gutter system does not drain water away from the foundation.

Gaps in the windows that can air and water leaks.

Attics with poor insulation and ventilation

Damaged water heater

Source: thelendersnetwork.com

Exterior

Leaky or defective roof and holes in the siding

Leaning or broken fencing

Doors that don’t properly open or close

Condition of gutters, chimney, stairs, railings, and porches

If swimming pools are up to code

Source: cardinalfinancial.com

Exterior of the Home

The exterior of the house must be inspected thoroughly. The checklist includes details about the following:

Presence of lead paint on the exterior surfaces

The swimming pool, if present, must be in good condition, while also adhering to the local ordinances

Condition of the chimneys

Condition of the roof and gutters, with a maximum of three layers on top of the roof

Condition of the siding

Condition of the porches, stairs, and railings

Condition of the foundation

Source: ecodocspro.com

VC-2 Soil Contamination:

Sections VC-2 and onwards are concerned with the specific property area to be insured by the Department of Housing and Urban Development

Source: process.st

C: Dumps and landfills

Is the property within close proximity to dumps, landfills, industrial sites, or hazardous materials?

Source: process.st

Roofs and attics

The roofing must keep moisture out.

The roofing must be expected to last for at least two more years.

The appraiser must inspect the attic for evidence of possible roof problems.

The roof cannot have more than three layers of roofing.

If the inspection reveals the need for roof repairs, and the roof already has three or more layers of roofing, the FHA requires a new roof.

Source: investopedia.com

Roofs and Attics

The roof and attics must be inspected for the following:

The roofing must be able to keep all moisture out

There cannot be more than three layers of roofing

The roofing should be expected to last for at least two more years after the purchase of the house

In case the FHA appraiser suggests roof repairs, a new roof is required.

The attic must be inspected for any possible roof problems

Source: ecodocspro.com

F: Flat roofs

The presence of a flat roof simply requires that a further investigation would need to be done into the health of the roof.

Source: process.st

A Few More Things: Considerations

The inspector must verify there is access to the property by both vehicles and on foot. A roof examination for holes and other defects covers the entire home and ensures at least two years of use remaining. Broken windows, doors and stairs in or outside get noted by the inspector. Entrances and exits must be accessible, and stairways must have a handrail if there are more than three steps.

Source: homeguides.sfgate.com

Do Not Disturb: Property Disturbances

The FHA inspector looks for nuisances and hazards around the property. Any sinkholes, or natural depressions in the ground’s surface, are noted by the inspector. Oil or gas wells still in use within 300 feet of an existing building or 75 feet from new construction are marked by the inspector, as well as abandoned wells within 10 feet of new or existing structures. Some common nuisances the inspector checks for include noise in the area or sounds from an area with a lot of traffic, smoke and excessive odors.

Source: homeguides.sfgate.com

Kitchen

Missing or broken appliances usually sold with a home, including stove and refrigerator

Broken or leaking sink

Source: cardinalfinancial.com

Kitchen

The kitchen must be inspected for the following:

Space for food preparation, serving of food, and storage

All appliances must be working

The refrigerator must be in a good working condition

The sink must be functioning properly, without any leaks

The stove or range with an oven must be in good working condition

Source: ecodocspro.com

Bathrooms

Broken or leaking toilet, sink, or tub/shower

No ventilation (either an exhaust fan or window)

Source: cardinalfinancial.com

Bathrooms

The home must have a toilet, sink, and shower. (This requirement might sound silly, but you’d be surprised what people will take with them when they’re foreclosed on, and what vandals will steal from a vacant house.)

Source: investopedia.com

Bathrooms

All bathrooms in the house are checked for the following:

Presence of a toilet- it must be in a good working condition, without any leaks

Presence of a sink- it must be in a good working condition, without any leaks

Presence or a bathtub or shower- it must be in a good working condition, without any leaks

Presence of ventilation- it can be an exhaust fan or a window

Source: ecodocspro.com

VC-12 Lead Based Paint Hazard:

Lead based paints are a particular problem for homes and buildings constructed prior to 1978.

Source: process.st

Crawl space or basement

Basement moisture

Evidence of past or present standing water

Source: cardinalfinancial.com

A: Positive drainage from grading

Proper drainage should combine guttering and downspouts with appropriate grading or landscaping to encourage water to flow away from the structural foundations.

Source: process.st

B: Standing water

Is there the presence of standing water next to the structure?

Checking for standing water on and around the property can reveal grading issues which could otherwise have been missed. Look closely for the ponding of water.

Source: process.st

D: Presence of pools of liquid

This could comprise:

Pits

Ponds

Lagoons

Stressed vegetation

Staining to soil

Staining to pavements

Odors

Source: process.st

G: Dampness or ponding of water

If dampness is noted, a vapor barrier is required.

Source: process.st

A: On-site septic system

The septic system must be visually inspected for readily observable evidence of system failure, along with the septic system’s immediate surrounding area.

Source: process.st

Wells and Septic Tanks

There must be a minimum distance between the wells and the septic tank. The septic tank will need to be at least 50 feet away from the residence. The well needs to be 10 feet away from the residence. If this distance is not met, the homeowner may need to fix it.

Source: thelendersnetwork.com

Cracking Up: Structure Defects

An FHA inspector examines the structure of the home and buildings on the property. Large or multiple cracks in the floor, walls, basement, attic or any other interior or exterior area of the house are noted by the inspector. The inspector looks for signs of water damage, such as marks on the wall near the ceiling, and for holes in support structures, like the foundation. Attics are checked to ensure there is some form of ventilation present, such as a window or vent.

Source: homeguides.sfgate.com

F: Garage doors

Does the mechanical garage door fail to stop when it meets reasonable resistance?

Source: process.st

Converted Garages

This may not need to be repaired, but it is up to the underwriter’s decision if this type of garage can stay or if it will need to be fixed. In some cases, it may need to be taken apart. The appraiser can give a value to the home without the converted garage and, in some cases, may deduct the cost for removing the garage from the value of the home.

Source: thelendersnetwork.com

Heating and Plumbing

Inoperable HVAC

Major plumbing issues and leaks

These are some of the common items an FHA appraiser looks for, but other issues that might make a house unsafe could keep it from passing.

Source: cardinalfinancial.com

Water heaters

The water heater must meet local building codes and must convey with the property.

Source: investopedia.com

Water Heaters

The water heater must be in good working condition, with scheduled maintenance being conducted timely. The water heater must adhere to the local building codes and must convey with the property.

Source: ecodocspro.com

All Systems Go: Property Mechanics

Mechanical systems are checked, such as furnace and central air conditioner, for major problems or dangers, such as frayed wiring. The FHA inspector examines both the plumbing and electrical systems in the home and checks for defects and hazards, like pipe leaks and unsafe wiring. He’ll also check to make sure that all the appliances are in operating order including the water heater.

Source: homeguides.sfgate.com

A Mouse in the House: Pest Infestation

Rodent droppings, termite tunnels or other signs of pest infestation constitute another essential part of the inspection. The home and any other structures, such as sheds or garages, are examined at the ground area for signs of termite infestation. Concentrations of wood in the yard, like a wooden enclosure for plants, are checked for evidence of termites. In all cases where wood from the primary structure makes direct contact with the ground, the FHA inspector will order an additional terminate inspection.

Source: homeguides.sfgate.com

B: Evidence of active termite infestation

All buildings should be checked for signs of termite infestation.

Source: process.st

FHA Home Inspection for Safety

Safety is very important during the FHA inspection. The inspector will look for hazards inside and outside of the home. This could be a leaking oil tank on the property or a toxic waste dump next door. Yes, that is an extreme example, but conditions nearby will determine whether the home passes the inspection.

If the home is in close proximity to an airport and its flight pattern, that may result in extreme noise hazards that could disqualify the home from being financed with an FHA loan.

The inspector will also make sure every bedroom has a window or a door to be used as a fire escape. The home must also have adequate access for police, fire and ambulance emergencies. This means the home could be on a dirt road, but it must be in passable condition.

Source:  

Items that Need to be Repaired Before Closing

The Federal Housing Administration will be looking at conditions that may pose a threat to health and safety. Some things may need to be repaired before the loan is approved. They include but are not limited to:

Fixing peeling paint in homes built before 1978. They may contain lead.

Downspouts that are not pained

Rain gutters that are broken

Exterior doors that may not open or close properly

Rotting portions on the property that may need to be removed

Exposed wires

Leaks in the plumbing system

Leaking or roofs in need of repair

A roof that is not expected to last more than 3 years

Signs of infestation

Rotting supports

Missing appliances such as the oven

Bedrooms windows with bars that do not open

Issues or cracks in the foundation

Wet basements or still water

Swimming pools that have been neglected

A water heater without pressure release values

Fences that are broken or showing signs of distress

Source: thelendersnetwork.com

What Defects Will the FHA Overlook?

FHA safety requirements may seem excessive. But keep in mind many of these issues can be solved. In addition, the FHA doesn’t place too much emphasis on minor cosmetic defects, delayed maintenance and normal wear-and-tear. As long as it’s not reasonably detrimental to safety, security and soundness, it will likely pass inspection. We provide a list of such cases below:

Damaged or cracked windows, doors, counter tops and other features that are still operable and functioning

Missing handrails

Poor workmanship

Worn floor finishes

Deficient paint surfaces in homes completed after 1978 (homes built earlier may pose lead hazards)

Source: smartasset.com

What Defects Will The FHA Overlook?

As long as the defects inspected are small and are not hazardous to the occupants in any way, the inspected hazards can be ignored. The FHA does not pay too much emphasis on defects, such as minor cosmetic defects, delayed maintenance schedule, and regular wear and tear. As long as these factors are not detrimental to the safety, security, and soundness of the occupants, these defects will be overlooked.

A few of the defects that the FHA appraiser might overlook include:

Missing handrails

Worn out floorings

Poor paint surfaces in homes completed after 1978

Poor workmanship

Damaged windows, doors, countertops, and other features that are still in a working condition

Minor plumbing leaks

Damaged plaster, ceiling material in homes constructed after 1978

Absence of an all-weather driveway surface

The list is not limited to the above-mentioned defects. The FHA might overlook a few other defects, depending on the house condition.

Source: ecodocspro.com

Unnecessary Repairs

While some repairs will need to be made before a home passes an FHA inspection, some other things may be wrong with the home. They may not need to be done before closing or before the loan is approved, but the buyer should be aware of them and the potential trouble they may cause in the future. They include

Paint that is peeling in homes that were built after 1978

Cracked windows

Leaking faucets

Carpet that is worn out or flooring that is in poor condition

Exterior doors that are functional but in poor condition

Debris under the home that should be removed

A previous infestation from pests

Flat roofs that may need to be replied

FHA home inspectors do not worry about cosmetic defects. A home will not be rejected for not having a modern style. Normal use of a home is expected as long as it does not pose a risk to health and safety.

These are some things that the FHA administration will want in order before approving a person for an FHA mortgage loan . The property will need to be safe and up to government codes.

These loans have been developed to help people get into homes, but the home needs to be safe. When purchasing a home,e there is an FHA safety checklist it will need to pass to ensure the home is safe for the buyer.

Source: thelendersnetwork.com

Who does FHA home appraisals?

Trained professionals complete FHA home appraisals. FHA-approved home appraisers must take several hours of classes and record hundreds of hours of supervised experience. They also have to take an exam and earn a state license before applying to be registered on the FHA Roster of approved appraisers.

Source: chase.com

How much does an FHA Inspection Cost?

An FHA inspection will likely cost you anywhere from $300 – $600 depending upon the location and size of the home. Although there is no set national price for an FHA inspection, you should budget on the high. The cost for the inspection may be included in the loan.

Read our article on FHA closing costs for a full understanding on how that is handled.

Source:  

How much does an FHA home appraisal cost?

FHA appraisals usually cost a few hundred dollars, about the same price as a conventional home appraisal. These factors may impact the cost of your FHA appraisal:

Type of property

Property location

Number of units in property

Unique attributes (e.g. dome house)

Source: chase.com

How much does an FHA appraisal cost?

FHA appraisal costs an average of $300 to $425, according to HomeGuide.

Source: bankrate.com

Main Factors that Affect the Cost of an FHA Appraisal

Type of property

Location of property

Condition of property

Size and square footage

How much land is included

The FHA appraisal cost is one of several reverse mortgage closing costs . Additional fees borrowers may pay include:

Origination Fees: cover a lender’s operating costs when processing, underwriting, and closing a HECM loan

Mortgage Insurance Premium: the upfront 2% MIP provides a measure of protection for both borrowers and lenders

Third Party Closing Costs: these may include, but are not limited to, fees for document preparation, wiring, title transfer, credit report, and recording

At GoodLife, we understand that home is where the heart is. Our team of Reverse Mortgage Specialists has helpful advice to share so you can enjoy a smooth, streamlined, and stress-free application process.

If you’d like to learn more about how reverse mortgage benefits may be able to improve your finances, don’t hesitate to contact us with any questions you have. We look forward to discussing how we may be able to help you achieve The GoodLife in Retirement that you deserve.

Source: goodlifehomeloans.com

Who pays for an FHA appraisal?

The lender typically orders the home appraisal, and the buyer pays for it. The average FHA appraisal costs between $300-$500, but it may cost more depending on several factors, including:

The home’s square footage

The property type and location of the house

How much land is included in the property

Whether the home has extensive damage

Source: cardinalfinancial.com

Who pays for an FHA home appraisal?

In many cases, the applicant is responsible for the appraisal costs. The price of the appraisal is usually included in the closing costs you pay when you close on your loan. Lenders typically require you to pay the cost of an appraisal at the time of application.

Source: chase.com

Who Pays for an FHA Appraisal?

In general, the borrower pays the appraisal fee. It is up to the borrower to negotiate the cost. 8

Source: investopedia.com

How Long Does the FHA Inspection Take?

The FHA inspection will take a few hours since it is an in depth look at everything. There is an inspection checklist that will be followed, and it may take a few days before the full FHA inspection report is returned depending upon the inspector’s workload.

Since an FHA appraisal is a comprehensive review of a property’s condition, the inspection itself may take up half a day or several hours. Also, be prepared to wait a few days to get the appraiser’s report. Additionally, if the appraiser decides that specific items need to be fixed or resolved before the property can pass the FHA appraisal, then it can take a week or more for these items to be properly addressed.

Source:  

At what point in the process do I get an FHA appraisal?

First, your lender must conditionally approve your loan. Once you’ve cleared the initial requirements for income, assets, credit, and other qualifying factors, you’ll be able to move ahead with an FHA appraisal.

It’s done this way so you avoid spending money on an inspection, just in case your loan isn’t conditionally approved.

Source: cardinalfinancial.com

When do I need an FHA home appraisal?

You have to get an FHA home appraisal if you’re planning to refinance or use an FHA loan to buy a house . In most cases, your lender orders the appraisal after you and the seller sign a sales contract or for certain refinances, after you sign the application. Once you receive the appraisal, you and your lender can review it and decide whether you still want to proceed with the loan.

All FHA home appraisals last for 120 days after issue. For the average buyer, 120 days is plenty of time to complete the closing process . If you need more time before signing the loan closing paperwork, you may be able to apply for an extension.

Source: chase.com

How long does an FHA appraisal take and how long is it good for?

An FHA appraisal is valid for 120 days. Eligible borrowers may be able to receive a 30-day extension. The FHA appraisal process typically takes the same amount of time as a conventional mortgage. Here is the general timeline for an FHA home appraisal.

Buyer and seller sign a sales contract

Buyer submits the contract to the lender

Lender orders the appraisal

The appraiser does market research and performs the appraisal on-site

The appraiser prepares and submits a report to the lender

Source: valuepenguin.com

How Long Does An FHA Appraisal Take And How Long Is It Good For?

The FHA appraisal usually takes the same amount of time as a conventional mortgage. The FHA appraisal has a general timeline. This timeline includes:

The signing of a sales contract between the buyer and seller

Submitting the contract to the lender by the buyer

Ordering of the appraisal by the lender

Market research conducted by the appraiser and then performing the on-site appraisal

Preparation of the report by the appraiser that is submitted to the lender

The FHA appraisal is good for 120 days. However, it may be extended for 30 days for eligible borrowers.

Source: ecodocspro.com

What will an FHA Inspector Look For?

First, the FHA inspection will determine the current market value. The inspector will compare the home to others that have recently sold nearby. The home will be compared to homes that have the same number of bedrooms, bathrooms and also similar property characteristics that may impact the home value (ie waterfront).

Next, the FHA inspector will perform a full inspection according to FHA guidelines making sure the home meets the minimum standards for an FHA approved home.

Source:  

What does the appraiser look for?

An FHA appraiser will observe, analyze and report on whether a property meets HUD’s “minimum property requirements” and, in the case of new construction, the property must also meet “minimum property standards.” As HUD’s Single-Family Housing Policy Handbook explains, the minimum property requirements are FHA’s general requirements that all homes it insures be safe, sound and secure. The minimum property standards, on the other hand, address the specific regulatory requirements surrounding the safety, soundness and security of new construction.

New construction is defined by HUD as properties under construction, proposed construction or properties that were built less than one year ago. Existing construction is a property that has been 100-percent complete for more than one year or, if it was completed less than one year ago, it was previously occupied.

An appraiser’s observations will generally be limited to readily observable conditions and are not the same as the comprehensive inspection performed by a licensed home inspector during the homebuying process.

“FHA appraisers are required to make sure the property is functional,” explains Ralph DiBugnara, president of Home Qualified. “So, that means things like the electric and utilities work properly. They are also focused on the health and safety of the home for example, stair railings are secure and functional, stairs and outside walkways are not cracked or dangerous. They are also going to make sure there’s no chipped or damaged paint that contains lead. All windows and doors must have safety releases and open properly.”

Source: bankrate.com

What does an FHA appraiser look at?

Your FHA appraiser will look at the interior, exterior and surrounding land to determine the home’s value and ensure it meets FHA home requirements. They will also take photos to document any issues they observe.

If the home doesn’t meet FHA criteria, your appraiser may recommend repairs or request further inspection by a qualified professional before the transaction can move forward.

If your FHA appraiser says repairs are required, you have a few options:

Ask the seller to make the required repairs.

FHA 203k loan to finance both the repairs and purchase.

Use a conventional mortgage, which requires a less-detailed appraisal.

Compare FHA vs. conventional loans

Source: nerdwallet.com

Do I still need to get an independent home inspection?

You should… but it’s not legally required. HUD strongly encourages home buyers to order an independent home inspection, separate from the “health-and-safety” inspection that your FHA appraiser will make.

In fact, the FHA loan process requires signing a disclosure that states that you understand the importance of getting an independent home inspection, and have considered one before signing the contract with the seller.

To clarify: It’s only required to have an FHA appraisal to buy your potential new home. However, it’s considered a best practice to order an independent home inspection so you can protect your interests.

Source: cardinalfinancial.com

What Does FHA Look For In An Inspection?

A HUD licensed home appraiser carry out the inspection. His job is to carry out a thorough inspection of the house, to ensure that the house is in a livable condition, and it meets all the basic requirements. Once the FHA inspector is satisfied with the condition of the house, the FHA loan is only then approved. If the FHA inspector does not approve of the house, the FHA does not approve the request for the loan.

During the inspection, the FHA inspector ensures that the house being inspected ticks most boxes, if not all, of the FHA inspection checklist. This checklist is set by the United States Department of Housing and Urban Development (HUD), which must be fulfilled to satisfy the FHA loan requirements. This checklist focuses on the safety, security, and soundness of the house.

Source: ecodocspro.com

What Does FHA Look For In An Inspection?

A HUD licensed home appraiser carry out the inspection. His job is to carry out a thorough inspection of the house, to ensure that the house is in a livable condition, and it meets all the basic requirements. Once the FHA inspector is satisfied with the condition of the house, the FHA loan is only then approved. If the FHA inspector does not approve of the house, the FHA does not approve the request for the loan.

During the inspection, the FHA inspector ensures that the house being inspected ticks most boxes, if not all, of the FHA inspection checklist. This checklist is set by the United States Department of Housing and Urban Development (HUD), which must be fulfilled to satisfy the FHA loan requirements. This checklist focuses on the safety, security, and soundness of the house.

Source: ecodocspro.com

Does the FHA require two appraisals?

There is a common misconception that FHA loans require two appraisals. Only one which the lender orders is required.

Because the appraisal includes an inspection component, buyers are not required to do a separate inspection. However, keep in mind that an FHA appraisal is for mortgage insurance purposes only and does not guarantee the condition of the home. FHA suggests that buyers independently have an inspection done.

Source: valuepenguin.com

An FHA appraisal isn’t an inspection

An appraisal estimates the home’s value for your lender, but an inspection thoroughly evaluates its condition so you can make an informed decision about whether to buy it.

HUD strongly suggests that buyers get a professional home inspection in addition to the required FHA appraisal. The FHA doesn’t perform home inspections, so to get one you’ll need to hire a qualified home inspector in your area.

Learn what happens during a home inspection

Source: nerdwallet.com

FHA Home Inspection Checklist: What Appraisers Look For

FHA appraisals are unique because they have two goals: First, to determine the property’s value, and second, to check for minimum health and safety standards. Here’s what you need to know about the process!

If you’re using an FHA loan to buy a home, the property must go through an FHA appraisal. This is not an inspection, but the appraiser will check that the house meets certain safety standards in addition to determining the property value.

In this blog, we’ve provided good-to-know info on what to expect during the FHA appraisal process, including an inspection checklist of what the appraiser will look for.

Source: cardinalfinancial.com

What Does the Appraiser Look for?

So, what does the FHA appraiser look for during this process? The primary areas of inspection are the roof, the foundation, lot grade, ventilation, mechanical systems, heating, electricity, and crawl spaces (when present).

Here are some of the key inspection areas required by HUD:

HUD’s primary concern is the health and safety of the home buyer who will actually live in the house. Thus, most of their appraisal / inspection checkpoints have to do with health and safety aspects of the property. Above all, the home must be habitable and comfortable, without any potential hazards to the occupant.

The lot should be graded in a way that prevents moisture from entering the basement and/or foundation. In other words, the lot should be sloped to allow water to drain away from the house — not toward it.

All bedrooms should have egress to the exterior, for reasons of fire safety. A bedroom window will suffice, as long as it’s large enough to allow egress.

Many homes built before 1978 still contain lead-based paint, which is a potential health hazard. In these homes, the appraiser will check for damaged paint (peeling, chipping, etc.). Such conditions must be corrected before the loan will go through.

All steps and stairways must have a handrail for safety. This is a commonly cited discrepancy during FHA appraisals.

The heating system must be sufficient to create “healthful and comfortable living conditions” inside the home.

The roof should be in a good state of repair and must keep moisture from entering the home. It should “provide reasonable future utility, durability and economy of maintenance.”

The foundation should be in good repair and able to withstand “all normal loads imposed” on it.

According to HUD Handbook 4000.1, the home “must be free of all known hazards and adverse conditions that may affect the health and safety of the occupants.” The bottom is that if something poses a threat to the health and safety of the occupant, or to the structure itself, it will probably be marked as “subject to repair.” This is the central theme that runs throughout the appraisal guidelines.

Source: fhahandbook.com

Overview of FHA Appraisal Guidelines for 2021

According to the 2021 FHA appraisal guidelines, all properties being purchased with an FHA-insured mortgage loan must be appraised by a licensed, HUD-approved home appraiser.

At a minimum, the appraiser must complete the following steps:

Visually inspect the subject property both inside and out.

Take photos of the property to be included within the loan file. The photos must show the sides, front and rear of the home, as well as any value-adding improvements such as a pool or patio.

Take a photo of each comparable sale transaction that is being used to support the appraisal.

Obtain and provide a copy of a street map that shows the location of the property and each comparable sale, or “comp,” used during the valuation.

Take photos that show the grade of the lot, if it’s a proposed construction.

These are the minimum steps that must be performed during an FHA home appraisal.

Source: fhahandbook.com

What happens after the appraisal?

If the appraiser determines that the house meets safety and soundness requirements, great! Your lender has the green light to close on your loan.

Even if the appraiser notes minor issues (like dripping faucets, cracked windows, missing handrails, etc.), a seller can make these corrections fairly easily. As long as these repairs are made before the appraiser returns for their final inspection, the loan can still move forward.

Sometimes, however, the appraiser may find serious damage to the house and recommend that repairs must be completed before you can move in. If the property has hazardous conditions, such as holes in the floor or a deteriorated roof, you may be unable to close on your FHA loan until they’re addressed. If the idea of a lengthy repair process doesn’t interest you, you could simply look for another property that can meet FHA standards.

Source: cardinalfinancial.com

What happens after an FHA appraisal?

In most cases, your FHA appraisal will confirm that the house is in good condition and the market value is what you expected. If that’s the case, the house will be approved for an FHA loan and you can move forward with closing.

In other cases, your FHA appraisal might bring up some issues that you, the seller and the lender need to address before the property is approved. Some of the most common problems include:

Repairs: FHA appraisals may note repairs that must be made before the loan can go forward. When this happens, the house is conditionally approved, and the appraiser notes what the market value will be after the repairs. In the meantime, you have to work with the seller to ensure the repairs are made before closing, or in certain cases, funds may need to be put in an escrow account if the repairs have to be completed after closing (e.g. exterior painting during winter months in colder climate states).

Low appraisals: If the market value is below the sales price, you can choose to withdraw from the contract and get your deposit refunded. Alternately, you can ask the seller to reduce the price so that you can still get the same FHA mortgage. A final option is that you can apply for a smaller FHA loan and pay for the difference with additional assets.

Deal breakers: If the appraisal notes a health or safety hazard that the seller will not agree to fix, the lender won’t approve the property. For example, the FHA usually won’t insure a home that needs major repairs to be livable such as a structural crack in the foundation. In this case, you can’t get an FHA loan.

FHA loans are a great option for first-time homebuyers. If you’re looking to learn more about this type of loan or other affordable mortgage options , speak to a home lending advisor for the right solution for your homebuying goals.

Source: chase.com

Next steps after a home inspection

If the home inspection report showed only minor and expected problems, the home buying process should continue as planned.

You may choose to give the seller, or the seller’s Realtor, a list of minor issues to fix. Getting the owner to fix a leaky faucet, replace a missing doorstop, or re-attach a downspout will shorten your to-do list after moving in.

After these repairs have been completed you may want to do your own walk-through inspection to make sure all the items on your list got fixed.

Source: themortgagereports.com

Assigning A Home Value

The primary function of an appraiser is to assign a fair market value to your home. In order to do this, they first take a look at the condition of your home as well as its amenities. After that inspection is complete, they look for comparable recent sales of similar properties, or “ comps “Similar” is a key word there. In order to be considered comparable, four-bedroom colonial homes are compared with other four-bedroom colonials. You wouldn’t compare it to a three-bedroom ranch property.

Comps are also typically judged against homes in the same – or very nearby – neighborhoods. There’s a little leeway in areas where homes are spaced farther apart, but that’s the exception rather than the rule. There are often up to three comparable properties used.

Based on this assessment, the appraiser puts all that information together and assigns a fair market value to the property.

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What to do with the results

Once the FHA appraisal has been completed, the mortgage lender will review the report and may ask for repairs to be completed based on the appraiser’s recommendations.

“The appraisal will outline exactly what needs to be repaired for the appraisal to be FHA-compliant,” says DiBugnara.

The seller is generally responsible for repairs unless otherwise stated in the sale contract. Some contracts will stipulate that the property is being bought as is, says DiBugnara. These repairs are expected to be completed before closing.

Not all sellers will be willing to make repairs, however, which means that as the buyer, you may have to continue searching for an FHA-compliant property.

You also have the option of choosing an FHA 203(k) loan , which allows for financing both the purchase of the home and the required repairs through a single mortgage. Borrowers can make a variety of repairs using an FHA 203(k) loan. These fixes include structural alterations, reconstruction, modernization and elimination of health and safety hazards.

One last option, if your income and credit score allow, is to purchase the home using a conventional mortgage.

Sometimes, the appraised value turns out to be lower than the purchase price. When this happens, the buyer and seller can decide to negotiate a lower price, or, if the seller doesn’t want to settle for less and there’s an appraisal contingency the buyer can walk away.

It’s worth noting that an appraisal can be valid for up to six months or more, especially in a market where home values aren’t appreciating as fast. In a hotter market, an appraisal might only be good for three months before becoming outdated.

Source: bankrate.com

What Happens if the Home Fails the FHA Inspection?

The home will not “fail” inspection but there may be things noted on the inspection that did not pass. The repairs or modifications noted by the inspector would need to be made before the loan can close. This means the current homeowner would need to make those repairs or pass on selling to an FHA buyer.

If there are repairs that cannot be made prior to closing, the lender can setup an escrow account for the repairs to be made afterwards. The escrow account will include the cost to make the repairs and borrower labor is not considered as part of the costs.

The home must be in habitable condition excluding these repairs. Meaning, if the home needs windows fixed or some floors repaired then that is fine. However, if there is no working kitchen or bathroom (as an example), then the loan will not close.

With non-FHA loans, the buyer and seller can negotiate a reduction in price to cover the repairs for the buyer to manage on his or her own after closing. That cannot happen with an FHA loan. All repairs need to be made prior to closing.

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What Can I Do If a Home Doesn’t Pass FHA Inspection?

The first step to take if a home doesn’t pass inspection is to figure out why. It’s most likely something that can be rectified. Maybe the seller needs to repair something with the heating or electrical system. If extensive, the seller may want to raise the purchase price in order to cover needed repairs.

But if a structure failed inspection due to serious damage, it may be best for all concerned for the homeowner to sell to a buyer who is not getting FHA financing. If you’re the buyer, you’ll have to continue house hunting. Or perhaps, you want to take a step back and repair your credit score before continuing the search, so that you can qualify for a conventional mortgage. This will also help you secure the best mortgage rates A HUD-approved appraiser conducts an FHA inspection to make sure the property is safe, secure and sturdy enough to live in. The requirements are baseline safety issues, though. To protect your investment in a more certain capacity, you’ll want to get a separate home inspection and make the sales contract contingent on the results. If the home does not pass the FHA inspection, and the seller does not want to make the needed repairs, the prospective buyer should move on and continue searching for their dream home.

Source: smartasset.com

What Will Fail an FHA Appraisal?

While appraisers may identify a number of problems, most of them will not lead to the property failing the FHA appraisal. However, what will fail an FHA appraisal are health and safety violations such as asbestos , lead paint, and pest infestations. Poor accessibility and signs of structural damage can also prevent a property from passing an FHA appraisal.

Remedies for Properties Below Minimum Standards

There are options for homebuyers who have fallen in love with a property that has one of these potentially deal-killing problems.

The first step should be to ask the seller to make the needed repairs. If the seller can’t afford to make any repairs, perhaps the purchase price can be increased so that the sellers will get their money back at closing. Usually, the situation works the other way around if a property has significant problems, the buyer will request a lower price to compensate. However, if the property is already priced below the market or if the buyer wants it badly enough, raising the price to ensure the repairs are completed (and the transaction closed) could be an option. 7 If the seller is a bank, it may not be willing to make any repairs. In this case, the deal is dead. The property will have to go to a cash buyer or a non-FHA buyer whose lender will allow them to buy the property in the present condition.

Many homebuyers will simply have to keep looking until they find a better property that will meet FHA standards. This reality can be frustrating, especially for buyers with limited funds and limited properties in their price range.

Some homebuyers may be able to gain approval for a different loan product. A non-FHA loan may provide more leeway on what condition the property can be in, but the lender will still have its own requirements. So, this approach may not be successful. Another option is to apply for an FHA 203(k) loan , which allows the purchase of a home that has significant repair and maintenance problems.

Mortgage lending discrimination is illegal.

If you think you’ve been discriminated against based on race, religion, sex, marital status, use of public assistance, national origin, disability, or age, there are steps you can take. One such step is to file a report to the Consumer Financial Protection Bureau HUD

Source: investopedia.com

What happens if the appraiser marks something for “further repair?”

The appraiser may note that items need to be corrected or may need further inspection. If so, they will mark it “as-repaired” meaning, the value of the home and eligibility for meeting the Minimum Property Requirements is conditionally based on the repair of the item.

Some conditions are fixable and can easily be addressed with repairs, in which case, the home will be approved conditionally. But in other instances where significant repairs are necessary, the lender may reject the property.

Source: valuepenguin.com

What happens if the appraiser marks something for “further repair”?

An item marked for “further repair” means that it must be fixed or inspected further. Meeting the criteria for Minimum Property Standards and the value of the loan is conditional based on the required repairs. Some conditions may be easily fixable for conditional approval, but if damage is significant, the lender may reject the property or HUD may require additional review.

Source: goodlifehomeloans.com

My report lists dozens of defects! What should I do?

Most reports list dozens of defects. Some defect lists run into three figures. That’s because there’s no such thing as a perfect home, especially if the property is a few decades old.

Don’t worry too much about the length of the inspector’s list of problems; instead, pay attention to the severity of the problems.

Many issues, such as loose doorknobs or cracks in the paved driveway, will be so minor you won’t bother fixing them right away, even though you know they’re there.

But some issues can be deal-breakers: problems with the physical structure of the home, for example, or safety issues such as lead pipes or an improper installation of a furnace or water heater.

Talk to your home inspector and real estate agent about the best path forward if you discover these types of issues.

Source: themortgagereports.com

Making Repairs After the Inspection

There’s a common misconception that FHA appraisals are unnecessarily strict, and that any inspection “hits” will end your chances of getting a loan. This is incorrect. In fact, the health-and-safety aspects of the FHA appraisal have gotten a bit more relaxed over the years. Additionally, most discrepancies are fully correctable. If they are corrected before the final inspection (when the appraiser follows up on the hit list), the loan can still move forward.

In most cases, the only “deal breakers” are serious safety issues that cannot easily be corrected. An example would be a bedroom with no windows or doors, and therefore no egress in the event of a fire. Another example would be an older home with a deteriorated roof and holes in the floor (i.e., a fixer-upper). In both of these cases, the discrepancies (A) create hazardous conditions and (B) cannot be easily fixed. These are the types of issues that send FHA loans off the track.

In most cases, however, flagged discrepancies can be resolved fairly easily — if the seller is willing to fix them. If the items are repaired or corrected to the appraiser’s satisfaction, the deal can move forward.

The official FHA appraisal guidelines for 2021 state this clearly: “Required repairs are limited to those repairs necessary to preserve the continued marketability of the property and to protect the health and safety of the occupants.”

Source: fhahandbook.com

Making the Grade: Repairs

The FHA inspector notes any deficiencies in the property that don’t meet FHA minimum standards. Once the flaws get fixed, the FHA loan can go forward. Under contingency clauses in the real estate, the seller can make the repairs to bring the property up to standards. Although they’re not obligated to, the FHA loan won’t go through without the property passing the FHA inspection, and they might have trouble with appraisal inspections on other types of buyer financing if this deal falls through. Sometimes a Realtor is willing to pay for minor repairs to prevent the sale from falling through. If repairing the property isn’t an option, switching to a 5% down conforming conventional loan can provide an option with fewer property requirements.

Source: homeguides.sfgate.com

Addressing serious issues

If your home inspector uncovers safety or structural issues, you’ll have a more important decision to make: Should you still buy the home?

If you do want to move forward, you’ll need:

Additional inspections Home inspectors are not necessarily specialists on any one aspect of home construction. A specialist such as a structural engineer should assess the condition of the home to determine what work and cost will be needed to fix the problems

Negotiating You’ll need to request repairs as a condition of buying the home. The seller may agree to lower the price if you’ll still buy the home in its current condition. Or the seller may agree to fix the problems before closing

Following up If the home needed significant repairs such as foundation lifting or water diversion, get the expert who diagnosed the problem to come back out and check the quality of the repairs

Source: themortgagereports.com

What Will Happen If An FHA Appraisal Comes In Low?

If the FHA appraisal comes in lower than the sale price, the FHA will not insure it. After this, you would be left with three options.

The three options are:

You can ask the seller to reduce the selling price.

If the seller refuses to reduce the price, you can walk away.

You can make up the difference with your funds or through any other form of financing that is available at your disposal. You will end up paying more than the home worth.

Source: ecodocspro.com

What if the FHA appraisal is low?

Homeowners should take steps to ensure their reverse mortgage appraisal is accurate. The appraiser should be notified of all improvements made to the property that increase its value, as well as factors such as bankruptcy or divorce that may have forced the sale of a neighboring home at a depressed level.

FHA appraisers must be approved by HUD, but if an appraisal management company is involved, it may be possible to request a certified appraiser located in the market area of the home. Certified appraisers have higher education and training than licensed appraisers, with greater experience in the local area, so their valuation may be more accurate.

You may have the opportunity to appeal an appraisal you believe is off base, but only a very small percentage of appealed appraisals result in a new valuation. Once the appraisal process is complete which typically requires one to two weeks the valuation is good for 120 days. Once it expires, you may be able restart the loan application and obtain a new appraisal but will be required to repay the fee.

To minimize costs, streamline approval, and prevent low appraisals, it may be wise for homeowners to make proactive upgrades that increase the property value.

Source: goodlifehomeloans.com

FHA Inspection Tips for the Sellers

If you are selling your home, there is a good chance the buyer may be considering an FHA loan. Especially due to the many benefits of an FHA loan and the fact that 25% of all mortgages today are FHA insured.

As a home seller, it is a good idea to review the FHA inspection checklist referenced above and make the appropriate repairs before you put your home on the market.

An FHA loan can be problematic for home sellers if they are not prepared.

There are some large ticket items that you may not be able to ignore. For example, if the roof is old and leaking or you have termites. These things will need to be repaired regardless as to whether you sell your home. In addition, fixing these conditions and anything else that is visible to potential home buyers will likely help you to get close to your listing price.

Source:  

What types of homes can be FHA-approved?

In general, FHA loans are limited to owner-occupied residences, and can’t be investment properties or flips, homes that were sold within the previous 90 days. Eligible property types include:

Detached or semi-detached dwellings (often referred to as single-family homes).

Manufactured housing.

Townhouses or rowhouses.

Condos.

Source: nerdwallet.com

Where to Learn More: HUD Handbook 4000.1

Most of the information above was adapted from HUD Handbook 4000.1. You can find more information about HUD’s appraisal guidelines for FHA loans in this particular handbook. It’s available on the Department of Housing and Urban Development website, and also on the “HUD Guidelines” page of this website (look for that tab in the main menu above).

If you really want to learn more about these appraisal requirements — for instance, if you’re a licensed appraiser and you want to get approved by HUD to inspect FHA properties — you should refer to their “Mortgagee Letters & Handbook for Roster Appraisers.” This is a collection of letters and handbooks that explain all property requirements and inspection procedures.

Source: fhahandbook.com

How to find FHA-approved homes

HUD has a searchable list of FHA-approved condo developments on its website. If you want to buy a condominium with an FHA loan, you could start by looking up developments in your area and contacting them to see if there are units for sale. An appraisal of the individual unit is required even if the condo development is FHA-approved.

To find other types of FHA-approved homes, you can search online real estate marketplaces or work with a real estate agent to explore active listings in your area. Any detached house, townhome, manufactured house or other type of residence will likely be eligible, as long as it meets FHA home requirements.

Source: nerdwallet.com

How to Increase Your Home Value for Appraisal

Below is a list of home improvements that may raise the value of a reverse mortgage appraisal:

Modernize outdated bathrooms and/or kitchen

Prioritize new appliances, if necessary

Upgrade home’s electrical, heating, and/or plumbing systems

Update the closets for function and appearance

Clean interior and repair any damages

Replace broken lights, fans, and fixtures

Steam carpets and polish wood

Touch up paint on walls, doors, and molding

Install smoke detectors in all bedrooms

Install carbon monoxide detector in main living area

Ensure exterior paint is in good condition, free of cracks

Landscape lawn and trim trees

Source: goodlifehomeloans.com

Should buyers attend an inspection?

Why not? Ask your inspector if they’d mind your coming along. Few inspectors object.

You’ll have a chance to explore your new home further and ask your inspector questions as you go.

Seeing the home inspection process can be much more informative than reading the report on its own. And it can give you some perspective on how major or minor each issue is.

Source: themortgagereports.com

Short Case Study

What Happens After An FHA Appraisal

For the following sections, let’s take a look at the process through the eyes of a potential home buyer named Casey. Every situation is different but depending on the volume of work being handled by the appraisal management company, the difficulty of doing the appraisal and finding comparable properties, Casey should expect to have the appraisal report back within a few business days. This section will go over the various scenarios that can come up.

Source:   

The Appraisal Comes Back Low

For our first scenario, let’s assume Casey has offered $380,000, had the offer accepted and the appraisal comes back at $360,000. Because the bank won’t approve a loan for more than the home is worth, there are two options:

If the seller is amenable, they might lower the price to what it appraises for, particularly if they’re motivated to move on. Otherwise, you can renegotiate. If you do this, you have to bring whatever the difference is between the appraised value and the final purchase price to the closing table in addition to your down payment and other closing costs. You might be able to avoid the back and forth haggling by putting a clause in your purchase agreement that says you’ll pay a specific amount above the appraised value up to a certain dollar figure.

If the seller is unwilling to budge on the price or you can’t come to an agreement, you may be left with no choice but to walk away. If that happens, you’ll need to make sure that you have an appraisal contingency in your purchase agreement. The appraisal contingency gives you the power to renegotiate and walk away if the appraisal comes back low. If you don’t have this contingency, you could lose your earnest money deposit. An earnest money deposit is an amount of money put in escrow representing a promise that you’re taking the final steps to secure financing to buy the property. In order to retain your deposit when you walk away, you have to be moving on due to a contingency defined in the agreement.

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The Appraiser Requests Further Repairs

Now, let’s take a scenario where Casey has fallen in love with a home, but it needs some electrical work done in order to be brought up to code and the appraiser is requiring the repairs be completed for the transaction to close. Ideally, Casey can negotiate to have the seller pay for the repairs, but if that’s not feasible, a buyer is allowed to pay for the repairs as well.

In general, repairs that are about the safety and livability of the property will have to be completed before the transaction closes. In certain cases, you can work with your mortgage lender to complete the process post-close via an escrow holdback.

In an escrow holdback, a portion of the loan funds are set aside to pay for repairs that can be completed later, but don’t impact safety. Examples include sod, gutters, deck, driveway and pest treatment.

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The Appraisal Comes Back At Or Higher Than The Purchase Price

If the appraisal comes back at least as high as you agreed to pay in your purchase agreement, this is the best possible scenario. You just move forward with your transaction.

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Summary

FHA inspection and appraisal are mandatory and an important part of the process when applying for an FHA loan. Buyers should look at it as an added measure of protection when buying a home. Sellers should plan ahead in preparation for an FHA inspection by making obvious and significant repairs before listing the home for sale.

Click to connect with an FHA Lender who can help

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The Bottom Line

FHA loans make it easier for borrowers to qualify for a mortgage, but they don’t necessarily make it easier to buy a property. If a property does not meet the minimum standards for an FHA loan, many homebuyers will simply have to keep looking until they find a better property that does meet FHA standards a process that can be frustrating, especially for buyers with limited funds and few properties in their price range.

However, FHA borrowers who know what to expect when home shopping can restrict their search to properties that are likely to meet FHA guidelines, or at least avoid setting their hopes on a fixer-upper property before having it appraised.

Source: investopedia.com

Using the home inspection as a guide

Home inspections provide valuable information before you buy a home. But they can help you make decisions after closing on the home, too. Your home inspection report could serve as a guide to scheduling and planning future repairs.

For example, if the report noted the HVAC system was 15 years old and uses an inefficient blower, you’ll know to start planning ahead for replacing the system in the next few years.

If you’d like to buy a home warranty to protect systems in your home, your home inspection could help you decide what level of protection to buy. Some warranties let you choose which systems in your home to protect. Your inspection should show your home’s most vulnerable systems.

Photo of author

Author D Laidler

I am David, economist, originally from Britain, and studied in Germany and Canada. I am now living in the United States. I have a house in Ontario, but I actually never go.  I wrote some books about sovereign debt, and mortgage loans. I am currently retired and dedicate most of my time to fishing. There were many topics in personal finances that have currently changed and other that I have never published before. So now in Business Finance, I found the opportunity to do so. Please let me know in the comments section which are your thoughts. Thank you and have a happy reading.

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