FHA insured mortgage loans are mortgage loans that is insured by the Federal Housing Administration which private mortgage lenders originate. In order to originate FHA insured mortgage loans, the mortgage lender needs to be a FHA registered mortgage lender. FHA loans make homeownership possible to first time home buyers or home buyers who have less than perfect credit or prior bankruptcy, foreclosure, deed in lieu of foreclosure with a 3.5% down payment. FHA insured mortgage loans are one of the easiest mortgage programs available in the United States. In order to qualify for a FHA insured mortgage loan, is you need to meet and qualify FHA mortgage lending guidelines. One of those guidelines is that the subject property needs a FHA Appraisal. Two things that are the most important factors in a FHA Appraisal is that the home’s value appraises out and that the home is secure and habitable.
FHA Appraisal: Value, Safety, Security
FHA insured mortgage loans require the borrower to pay a 3.5% down payment and will lend up to 96.5% of the appraised value. In the event if the home you are purchasing does not appraise out, then the home buyer needs to pay for the difference. For example, if you are puchasing a home for $150,000 and the FHA Appraisal comes out to only $100,000, your FHA mortgage lender will only lend 96.5% of the appraised value or $96,500 and you need to come up with the difference. On the flipside, if you are purchasing a home for $100,000 and the FHA Appraisal is $150,000, your FHA mortgage lender will lend you 96.5% of the purchase price which on this case will be $96,500.
FHA Appraisal Basics
A FHA Appraisal is very similar to a conventional appraisal. FHA Appraisers use the sales comparison approach. The sales comparison approach is where the appraiser uses the the recent sale prices of similar and like homes within a one mile or less distance from the subject property. FHA Appraisers aslo use the cost approach appraisal method which is derived on how much it will cost to build the same property.
The focus of a FHA Appraisal is not just getting the right value to protect the mortgage lender’s collateral but also to make sure that the home is secure and habitable. The FHA appraisal will note all the items deemed not safe and not habitable. The home needs to be free from broken windows, loose wiring, leaky roofs, peeling paint, and foundation damages.
Realtors Worry About FHA Appraisal
Many veteran realtors advice their sellers not to accept a buyer who is planning on getting a FHA insured mortgage loan because they remember the days where they had knit pickey FHA appraisers. FHA Appraisal process has gone through many changes and a FHA appraisal is not as tough as they used to be. Many FHA mortgage lenders can waive certain repair items noted by the FHA appraiser as long as they are minor items such as a leaky faucet or minor broken windows. An older roof is fine as long as the roof longevity is at least 3 years. Fuse boxes are fine too as long as the house does not have any building violations.
FHA Appraisals Are Stuck With The Home
Once you order a FHA appraisal on a subject property and you get a low value, that value will be with the subject property for a period of 120 days. With conventional appraisals, in the event if you get a low appraisal and your mortgage lender will not allow you to get another appraisal so you can get a higher value, you can change mortgage lenders and you can then order another conventional appraisal. However, that is not the case with a FHA appraisal. The FHA appraisal is stuck with the home for a period of 120 days.