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How an FHA Appraisal Works

The Department of Housing and Urban Development (HUD) has set minimum property standards that FHA appraisers have to adhere to. The FHA appraisers must consider security, soundness, and safety:

  • The FHA appraisal provides more protection for the buyer, however it is more expensive.
  • If the appraiser finds any issues, the FHA may require the issues to be corrected before closing. The appraiser will then indicate the property is “Subject To,” which means the home’s value is based on the repairs being finished.
  • The FHA minimum requirement is a concept that the home must work like it was designed to work. Unlike a standard appraisal, the FHA guidelines have detailed instructions for property inspection. 

FHA Mortgages Require an FHA Appraisal

If you choose an FHA mortgage loan, you will have an FHA appraisal. There are several different ways that an FHA appraisal differs from a standard appraisal. 

FHA loans are backed by the government, so they have with strict requirements because the government wants to make sure you are buying a safe home and that the taxpayers are backing a livable home. 

FHA Loans

One appeal of Federal Housing Administration (FHA) loans is that this type of mortgage loan offers financing with just 3.5% down. 

The down payment and closing costs can come from a cash gift, an approved loan, or an approved down payment assistance program. Depending on how you go about doing it, you can potentially get a zero-down mortgage with FHA loans. 

With a credit score as low as 580, you may still qualify for FHA financing. 

FHA loans have lower down payment requirements, relaxed credit standards, and higher debt ratio allowances. 

Some Mortgage Loans Require Different Appraisals

It’s very hard to find and qualify for a mortgage program that doesn’t require an appraisal for home buying. 

One way to protect a lender’s investment in your purchase is to require an appraisal. It will help determine the value of your home and make sure the purchase price is not more than the home’s value. 

It’s important to keep in mind that not all appraisals are the same. There are different varieties depending on the type of financing you are using to purchase your home. 

If you are purchasing a home with a VA loan, you would use a VA-certified appraiser. The appraiser would have to be certified by the VA. The appraisal ordering process is also different for this lender and can take longer than other standard appraisals. 

For FHA financing, you will need to use an FHA appraisal. This means you will need to use an appraiser who is HUD-approved to inspect and appraise your property.

There are also certain situations where your FHA appraisal can vary from another FHA appraisal elsewhere. For example, if you live in an area that has water issues, you may need to get a well test. 

How are FHA Appraisals Different? 

FHA mortgages are preferred by many first-time buyers because they make it easier to purchase a home. Because of this, it’s important that you understand FHA appraisal requirements.

The Department of Housing and Urban Development (HUD) has created minimum property standards that an FHA appraiser needs to consider. The FHA appraiser needs to consider soundness, security, and safety in their valuation. 

The extra requirements and checks can make it more expensive, but it also provides more protection for the buyer.

The basic FHA minimum requirement is that everything inside the home needs to work like it was designed to work. Unlike standard appraisals, the FHA guidelines include detailed instructions for inspecting the property.

The most commonly checked things include:

  • Water supply- must be adequate
  • Windows- need to be intact
  • Roof- cannot leak 
  • Railings-  due to safety reasons, all decks, patios, porches, and balconies must have railings installed. 
  • Earth-to-wood contact– can leave the property vulnerable to termites
  • Lead paint- can be hazardous, mainly to children

You must also keep in mind that an FHA appraisal is not an inspection. The FHA still strongly encourages homebuyers to get an inspection before they purchase the property. The FHA also discloses that they do not guarantee the condition of the property. 

“Subject To” Appraisal

If the appraiser finds an issue like cracked windows or a loose handrail, they would “flag” them. The FHA may require either the buyer or seller to fix the flagged problems prior to closing. 

The appraiser will then say that the property is “Subject To.” This type of appraisal means the value is based on what the home’s value would be after certain repairs are made. If an FHA appraisal is ‘Subject To’ it can sometimes delay closing. A good trade-off is that catching these issues before you close can save you thousands of dollars. 

FHA Appraisal Side Effects and Misconceptions

You should be prepared to pay more for FHA appraisals due to the extra work involved.

FHA loans are great for buyers, but sellers may be more inclined to accept an offer that is backed by a conventional buyer. If a seller is aware of certain problems with their property, they may know their home won’t pass an FHA appraisal. They would also need to get the issues fixed. 

There are some misconceptions that sellers should know about FHA appraisals. Many agents and sellers believe the FHA appraisals are strict and often come in lower than standard appraisals. 

There is no need to worry, if an appraiser happens to flag an item, they are not typically a huge problem. Many issues that the FHA appraisal will flag can be easily corrected and at low expense.

What Are Today’s Mortgage Rates?

Today’s mortgage rates are still fairly high, though they are expected to start trending down. If you are currently looking to get an FHA mortgage, you will still need an FHA appraisal. 

If you are selling your home, you should be prepared to get your home FHA-ready. As a buyer, you should sleep easy knowing that an FHA appraisal not only determines your home value, but also looks out for your health and safety. 

When looking for the best FHA mortgage rate, compare several lenders’ interest rates and loan costs, and pick the one that best works for you. 

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