FHA Appraisals Versus Conventional Appraisals Guidelines

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In this article, we will discuss and cover FHA appraisals versus conventional appraisal guidelines. There are several important factors between FHA appraisals versus conventional appraisal guidelines. All home buyers who need financing on a home purchase will need a home appraisal required by their lenders. Lenders rely on the home appraisal to secure the mortgage they give borrowers. Home Appraisals are mandatory and required by lenders. Appraisals are necessary for lenders to determine the value of the property they are loaning against. In the following sections, we will go into depth about the differences between FHA appraisals versus conventional appraisals.

Why Would Someone Get a Home Appraisal?

What Do They Look For In An FHA Home Appraisal?

For homebuyers who are seeking a home mortgage, lenders will require a home appraisal Depending on the home mortgage program they choose, an appraisal needs to be ordered by the lender. If it is an FHA loan the borrower is applying for, the lender will order an FHA appraisal. If it is a conventional loan the borrower will order a conventional loan appraisal. If it is a VA loan, then a VA home appraisal will be ordered.

What Is The Purpose of an Appraisal Management Company?

Lenders order appraisals through an Appraisal Management Company. The main difference between FHA appraisals versus conventional appraisals is that FHA appraisals have a heavy weight on safety and security besides the value of the subject property. FHA home appraisals are honored everywhere. If a borrower decides to change lenders during the home mortgage process, they can and the FHA appraisal will transfer with the FHA Case Number.

Do All Mortgage Lenders Require an Appraisal?

Appraisal Requirement

Every lender will require a home appraisal in the mortgage application process on the subject property. The main objective of a home appraisal is to determine the value of a subject property by the lender. The main focus of an appraisal is to determine the value of the property using similar and like properties nearby. Comparable sales of similar properties within half a mile to a mile will be the biggest factor in determining the value of the property by the appraiser.

How Do Appraisers Determine Pricing Adjustments?

The appraiser will make pricing adjustments based on the positive and/or negative factors of the subject property when determining the value. A home appraisal offers a sense of security for the lender. This is because it is the only instrument used to protect both the lenders’ and the homeowner’s investment. An FHA appraisal is for Borrowers qualifying for an FHA loan. Conventional Appraisals are for borrowers seeking conventional loans. Most home appraisals are similar to each other. However, there are minor differences between FHA appraisals versus conventional appraisals.

What Do Conventional Appraisals Look For?

Fannie Mae and Freddie Mac are the two mortgage giants that set standards for Conventional loans. Conventional loans, also called Conforming loans, need to conform to Fannie Mae and/or Freddie Mac Guidelines. FHA appraisals versus conventional appraisals are Conventional loans are not guaranteed by the government like FHA, VA, and USDA loans are. Conventional lenders will require a conventional loan appraisal. The main purpose of a conventional appraisal is to determine the value of the property and its condition.

Difference Between FHA Appraisals Versus Conventional Appraisals

HUD, the parent of FHA, requires home appraisers to be HUD certified to be able to do appraisals on FHA loans. HUD has a panel of HUD-certified home appraisers. Fannie Mae and Freddie Mac do not require this. HUD has longer more detailed property checklist standards requirements than conventional loans.

FHA Appraisals Versus Conventional Appraisals Property Standards Requirements

Both Fannie Mae and HUD require safety standards for the property. Besides property standards, there is not much difference between FHA appraisals versus Conventional appraisals. The main difference between FHA appraisals versus conventional appraisals is FHA is more strict with the condition of the property. There are more restrictions on the condition of the property on FHA appraisals versus conventional appraisals.

Are FHA Appraisals Hard To Pass?

FHA appraisals are harder to pass than conventional loan appraisals. For FHA home appraisals, there is a checklist from HUD the home appraiser needs to follow in order to pass the FHA home appraisal on FHA loans. Conventional home appraisals normally require the value of the property. As long as the property is habitable, it is acceptable to pass home appraisal on conventional loans. FHA loan home appraisals require the property condition to be above average. You cannot have broken glass, and peeling paint, and the roof cannot have a life span of fewer than three years. Conventional loan appraisals are less restrictive than FHA appraisals.

What Things Will Fail An FHA Appraisal?

FHA appraisals are much stricter with the safety of property such as the following:

  • Mold
  • Railings
  • Outlets
  • The function of electronic appliances
  • Peeling paint

What Do They Look For In An FHA Appraisal?

The Federal Housing Administration does not make loans but insures residential mortgage loans made by private mortgage lenders as long as it meets its guidelines and rules. Since HUD insures its mortgages on behalf of lenders and qualified and approved borrowers, it sets its own guidelines and rules pertaining to appraisals as well as other guidelines. FHA as well as its lenders order appraisals to make sure the value of the subject property is in line with the purchase price. Special emphasis on the subject property is safe and secure with no hazards or building violations.

Are FHA Appraisals More Strict Than Conventional Appraisals?

Safety And Security Focus On FHA Appraisals Versus Conventional Appraisals

The difference between FHA appraisals versus Conventional loan appraisals is that FHA-insured mortgage loan appraisals focus on the way they view that all FHA-insured mortgage loans need homes that meets the minimum standards of living. HUD requires that the home have minimum standards of living which involve the overall safety and security of the homeowner and its occupants. HUD requires that the home be free of the following:

  • Peeling paint
  • Broken windows
  • Unsafe plumbing
  • HVAC
  • Electrical items
  • No pending building violations that can affect the safety and security of the homeowner and its occupants
  • The electrical, plumbing and HVAC systems must be in working order during the FHA appraisal

Any FHA violations need to be addressed and corrected before an FHA appraiser can approve and sign off the appraisal.

What Fails a Conventional Appraisal?

With conventional loan appraisals, repair items and outdated improvements to the subject property can affect the value of the home appraisal. Safety and security issues may not be the cause of a mortgage loan approval, unlike FHA appraisals. FHA appraisals may have the value of the appraised property. But if the appraiser deems certain items as unsafe and insecure, the property may not pass the FHA appraisal. Borrowers may not get approved for an FHA-insured mortgage loan on that particular subject property.

Why Would an Appraisal Be Sent Back For Revisions?

One of the frequently asked questions is why would an appraisal be sent back for revisions? An appraiser can not pass a home appraisal if the home does not pass the checklist from HUD property standards or the house has safety and security issues. The homebuyer and/or home seller have time to fix the issue at hand. 

Options For Homebuyers If The Property Does Not Pass Property Inspection

If the seller cannot make the correction or it cost too much, both sides can go back to the negotiation table and can negotiate for a lower price or the buyer can do an FHA 203k renovation loan. Fortunately, just because the property does not comply with FHA guidelines regarding the safety and security issues, FHA does give the sellers a chance to correct the safety and security issues. Re-inspection by the FHA appraiser is allowed. A re-Inspection fee is required

Can FHA And Conventional Appraisals Be Transferred?
FHA And Conventional Appraisals

If a home buyer has a home appraisal and wants to transfer their loan to another lender, can the home appraisal be transferred? An FHA home appraisal can be transferred from one lender to another in the event that the borrower decides to change lenders during the mortgage process. A conventional home appraisal cannot be transferred from one lender to another if the borrower changes lenders during the home process. An FHA appraisal can be transferred to a Conventional home appraisal. However, a Conventional Home Appraisal cannot be transferred to an FHA appraisal if the mortgage borrower decides to change the loan program from a Conventional Loan to an FHA loan.

This article on FHA appraisals versus conventional appraisals was updated on July 22nd, 2022.