What Are the FHA Appraisal Requirements?
Over the past couple of years, I have heard numerous real estate agents steer people away from FHA mortgages. Some have stated in their MLS listings that the seller will not accept a buyer with FHA financing and others have told buyers that it isn’t a good idea to get an FHA loan. All of this because they think that FHA appraisal requirements are too tough.
Yes, this used to be quite true. FHA is the first to admit that historically their appraisal requirement heavily stressed the repair of minor property deficiencies.
However, this has changed.
FHA now permits an “as-is” appraisal for homes being financed with FHA loans that have minor property deficiencies resulting from deferred maintenance and normal wear and tear. In fact, the current FHA appraisal requirements have been in place since January 1, 2006
FHA Appraisal Requirements – General Rules to Remember
For an easy reference to FHA Appraisal Requirements, think of the two S’s.
Safety and Soundness.
Safety – FHA underwriting guidelines require that lenders review the appraisal to see if the appraiser has made note of property conditions that will affect the health and safety of the occupants.
Soundness – FHA underwriting guidelines require that lenders review the appraisal to see if the appraiser has made note of property conditions that jeopardize the soundness and structural integrity of the property.
When an FHA appraisal is done on a home, they are looking to make sure that their aren’t any safety hazards and that the house is structurally sound.
In Mortgagee Letter 05-48, FHA provides the following examples of minor property conditions that do not require automatic repair for existing properties:
- Missing handrails
- Cracked or damaged exit doors that are otherwise operable
- Cracked window glass
- Defective paint surfaces in homes constructed post 1978
- Minor plumbing leaks (such as leaky faucets)
- Defective floor finish or covering (worn through the finish, badly soiled carpeting)
- Evidence of previous (non-active) Wood Destroying Insect/Organism damage where there is no evidence of unrepaired structural damage
- Rotten or worn out counter tops
- 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 space with debris and trash
- Lack of an all weather driveway surface
FHA also provided the following list of conditions that will require automatic repair for existing properties:
- Inadequate access/egress from bedrooms to exterior of home
- Leaking or worn out roofs (if 3 or more layers of shingles on leaking or worn out roof, all existing shingles must be removed before re-roofing)
- Evidence of structural problems (such as foundation damage caused by excessive settlement)
- Defective paint surfaces in homes constructed pre-1978
- Defective exterior paint surfaces in home constructed post-1978 where the finish is otherwise unprotected.
These lists are not meant to be all inclusive, but they give clear guidance on the issues that are and are not a concern to FHA.
If you are interested in buying a house and you want to use an FHA loan for financing, don’t let common misconceptions about FHA Appraisal Requirements misguide you.