FHA Appraisal Requirements

by Best FHA Lender on March 17, 2010
11 comments | Leave a Comment

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.

They’re wrong!

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.

Start your path to FHA Home Ownership today.

Comments

Gary Sattelberger 03/17/10

Great info, Steve.

What do the guidelines say about the stove? I’ve heard so many conflicting reports about the stove being required or not. I’ve even had one deal almost not go through at the last minute because of a missing stove (thankfully, the buyer put one in before COE) while at the same time another deal closed without one.

It seems there is a lack of consistent interpretation at times.

Steve Lines 03/21/10

Gary,

Thanks for writing. Sorry I’m just getting back to you now.

I’ve heard conflicting info about stoves also. There are a number of investors that will not fund if the home does not have a stove.

We can.

FHA does not require a stove but they are concerned with safety issues. So, if the stove is missing the electrical wires and/or gas must be capped.

I have heard that FHA will require a missing countertop range to be replaced.

Hope this helps.

Steve

Katie 05/06/10

We just had our FHA appraisal on a foreclosed home, we are ten days away from closing, and we signed an “as-is” contract with the selling bank. However, now there are problems that need to be fixed before they can complete the appraisal (chipped paint on the outside – built in 1960, 3 shingles need to be replaced, and a leaky faucet needs to be fixed). Did we just get ourselves stuck? How do we fix things on a house that is not ours? Are we ALLOWED to fix things on a house that is not ours? Can we ask the selling bank to pay for it? Afterall, they knew we were going FHA.

Donna Krause 05/19/10

Are there any guidelines as far as what kind of Furnace is acceptable? The home was built in 1980 and has hot water baseboard with a coal boiler. No other backup, also the hot water is heated with the boiler. We think it is very efficient! The other issue is the garage (not attached) has a metal roof, and there is some rust on it. Will this be an issue?

Marc Gerard 06/04/10

Very good article Steve. Not only should someone not stear clear of FHA loans, they are about the only game in town these days…at least in Ca. As an appraiser, I concur with your assessment of acceptable properties based on condition…HUD is concerned with (1) health and safety and (2) structural issues. So, if the cosmetic repairs are so severe that they may adversely affect health and safety, they will likely have to be corrected or the collateral declined. Having reviewed appraisals from all over the country for FHA financing though, I can also state that such a case is vary rare. Bottom line, HUD is in the biz of helping consumers so you shouldn’t shy away from FHA financing…for a seller, it may be the best way of selling your home.

richard rawle 06/15/10

have a property with no garage door sensor – interpretation is that this is a safety issue and needs to have one installed – do you agree?

margaret 06/08/11

I’m not sure if my appraisal was completed. I say this because there were some repairs that needed to be done on the home I’m trying to purchase. Is the appraisal considered to been complete if there are repairs to be done?

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