How to Meet FHA Appraisal Requirements: A Comprehensive Guide

If you purchase a house using a loan from the Federal Housing Administration (FHA), the property requires an FHA appraisal. Similar to evaluations done for traditional loans, which focus on determining the value of the home, an FHA appraisal also ensures that the residence complies with the agency’s criteria for safety and soundness.

What does an FHA appraisal entail?

An FHA appraisal is an evaluation
home appraisal
where a licensed specialist assesses a property slated for purchase using an FHA loan. This evaluation aims to establish:

• 
  The home’s market value.
  
  Similar to a lender for a traditional loan, the lender for an FHA mortgage is typically a bank, credit union, or another financial institution.
  FHA loan
  And the FHA also aims to make sure that they aren’t providing loans or guarantees exceeding the home’s value.
• 
  That the house satisfies “basic property standards.”
  
  This section of the assessment is akin to an examination conducted during an appraisal process.
  conventional loan
  Fundamentally, an FHA appraiser evaluates whether the property complies with the criteria established by the U.S. Department of Housing and Urban Development (HUD) regarding safety, durability, and livability. Should the house not meet these requirements,
  new construction
  , it has to comply with “basic property requirements.”

What is the process for an FHA appraisal like?

The FHA appraisal process typically looks like this:

1. 
   Appraiser visits
   
   An FHA-certified and licensed appraiser captures images and records details regarding the property’s condition, encompassing both its inside and outside as well as its surrounding area.
2. 
   Appraiser writes a report
   
   The appraiser gathers their observations into a report, detailing the characteristics of the property—along with any issues—and offers an assessment of its market worth.
3. 
   Appraiser makes recommendations
   
   If the appraiser thinks the property does not comply with HUD requirements, they will specify the needed repairs along with an estimated cost for each.

If an FHA appraiser cannot ascertain whether a property satisfies
HUD’s standards
The mortgage lender might request another property evaluation.

Typically, you can anticipate that an FHA appraisal will be finished within one week.

FHA appraisal guidelines

When undergoing an FHA appraisal, the appraiser will assess both the local real estate market and the specific property. Should you plan to utilize an FHA loan, having some understanding of this procedure might assist you in identifying key aspects when visiting potential homes.

Market research

To determine the worth of a house, an appraiser will examine the regional housing market and the selling prices of similar properties.
comparable properties
that have been transferred recently.

Appraisers are required to reference certain pieces of market research, which include:

• Two similar home sales were finalized within a span of 90 days.
• Three properties were recently sold within the same neighborhood.
• Two ongoing listings or sales in progress

FHA appraisal checklist

When conducting an assessment, the appraiser will also examine the property directly. The HUD’s Single Family Housing Policy Handbook outlines extensive criteria for inspection during this evaluation phase.

Regarding the property itself, the appraiser will confirm compliance with HUD’s requirements by examining the following points:

• 
  Physical features:
  
  Including the foundation, roof, siding, chimneys, and drywall. The inspector must also confirm that there is no unrepaired
  lead paint
  .
• 
  Utility and systems:
  
  For instance, they examine water systems, electricity, plumbing, and heating, ventilation, and air conditioning (HVAC). Additionally, inspectors check lighting fixtures, sewage facilities, appliances, and external amenities such as gardens or driveways.
  swimming pools
  .
• 
  Environment:
  
  All possible dangers or inconveniences near the house, including close proximity to power lines, neighboring freeways, or airports, along with signs of pest infestations like termites should be noted. Additionally, the inspector will assess the condition of the soil and the slope of the land surrounding the property.

What are the minimal requirements set by the FHA for properties?

Every house eligible for FHA funding, regardless of whether it’s a single- or multi-family dwelling, needs to comply with basic property conditions or criteria. These guidelines, designed to guarantee purchasers acquire a livable residence, encompass aspects like:

• 
  Major systems and appliances:
  
  The house’s heating, electric, and plumbing systems should all be operational.
• 
  Roof:
  
  The roof needs to remain operational for at least an additional two years.
• 
  Access:
  
  The site needs to have access via a secure route. This path may be either publicly maintained or privately owned.
• 
  Utilities:
  
  Fuel, electric power, drinking water, and wastewater systems must all be readily available.
• 
  Foundation:
  
  The base needs to be free from damage, correctly leveled, and should include sufficient water management to avoid seepage.

Subsequent actions following an FHA appraisal

After the FHA appraisal has been finished, the
mortgage
The lender will examine the report.

Possible outcomes include:

• 
  No issues.
  
  In this situation, you can proceed with the purchase.
• 
  Low appraisal.
  
  The appraiser thinks the house is valued below the agreed-upon purchase price, leading to what is referred to as an
  appraisal gap
  The lender will not offer more funds than the property’s value, so if you wish to proceed with the purchase, you must cover the shortfall yourself. Alternatively, consider negotiating a reduced sale price or withdrawing from the agreement; however, doing so might result in losing your earnest money if your contract does not protect against such losses.
  appraisal contingency
  .
• 
  Repairs required.
  
  Should the appraisal reveal major required repairs for the house, you will need to renegotiate with the seller to address these issues prior to proceeding with the loan process.
  purchase and sale agreement
  (PSA) will specify who bears the cost, though typically, the responsibility falls on the seller. The lender might accept proof of completion for the necessary repairs or could request a new appraisal.
• 
  Major hazards.
  
  If the appraisal reveals a significant problem with the house, it might not qualify for an FHA loan.

What occurs when the FHA appraisal reveals issues?

If problems arise, “the appraisal will specify precisely what needs to be fixed to meet FHA compliance,” states Ralph DiBugnara, who serves as the president of Home Qualified, a platform within the real estate sector. Generally, these required repairs should be completed prior to proceeding.
closing day
Even so, you might still manage to proceed with the closing if you’re postponing an external repair until temperatures rise. In such cases, part of the payment amount could be kept in escrow until the necessary work is completed.

If you want more time to address corrections, think about selecting an
FHA 203(k) loan
This type of financing allows for both the acquisition and improvement of a property through a single mortgage. The 203(k) loan covers structural modifications, rebuilding, updating facilities, and removing health and safety risks.

What does the FHA require in terms of repairs?

A few of the typical fixes needed under the FHA encompass:

• 
  Peeling paint:
  
  All sections of your house showing chipped paint—whether inside, outside, or within supplementary constructions like sheds or fences—need to be cleaned up and then recoated.
• 
  Broken windows:
  
  Damaged windows and doors should be replaced before moving in.
• 
  Drainage:
  
  If necessary, drainage must be reconfigured to direct water away from the house.
• 
  Infestation:
  
  All rodents, insects, or other pests affecting the house should be eliminated.
• 
  Major systems:
  
  Should any of the primary systems within the house—like heating, plumbing, or electrical components—be damaged, these must be fixed prior to completing the sale.

FAQ

• 
  What is the price of an FHA appraisal?
  

  The cost of an evaluation for a standalone residence ranges from $300 to $600 as stated by Neighbors Bank. This fee can vary based on local market conditions, the distance the evaluator must cover, and the dimensions of both the dwelling and its land parcel. Usually, the person purchasing the property covers this expense, which might then be combined with additional settlement charges.

• 
  For how long is an FHA appraisal considered valid?
  

  An FHA appraisal may remain valid for up to six months, particularly in a real estate market with consistent home values.
  In a hotter market
  An appraisal typically remains valid for just a few months. However, most mortgages are finalized within 30 to 45 days, which usually happens before the appraisal period ends.

• 
  At what point do I require an FHA appraisal?
  

  You must obtain an FHA appraisal when utilizing various kinds of loans.
  FHA loans
  , including:

  • FHA purchase
  • FHA 203(k)
  • FHA cash-out refinance
  • FHA Reverse Mortgage (HECM)

  You can bypass the FHA appraisal if you’re obtaining a loan.
  FHA streamline refinance loan
  .

• 
  What flaws does an FHA appraisal tend to ignore?
  

  An FHA home appraisal may not identify all issues, nor is it meant to detail standard wear and tear like a used or dirty carpet. Should the issue be primarily cosmetic and does not render the house unsafe, it probably wouldn’t appear in an FHA appraisal.