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.
What is an FHA appraisal?
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.
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.
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:
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
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
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
Kitchen
- Missing or broken appliances usually sold with a home, including stove and refrigerator
- Broken or leaking sink
Bathrooms
- Broken or leaking toilet, sink, or tub/shower
- No ventilation (either an exhaust fan or window)
Crawl space or basement
- Basement moisture
- Evidence of past or present standing water
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.
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.
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
How to Negotiate Post-Home Inspection Repairs like a Pro
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.
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.
What’s next?
FHA loans can be a great choice for borrowers of all kinds. They’re especially popular with first-time home buyers because they make homeownership accessible for those who may not have a large down payment or have imperfect credit history. Interested in learning more? Contact us today to discuss your options with a loan originator, or start with a free rate quote.
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