FHA Appraisals Versus Conventional Appraisals Guidelines
This Article Is About FHA Appraisals Versus Conventional Appraisals 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 secured 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
- Appraisals is used by lenders to determine value and protect their investments as well as the homeowners investments
- Home Appraisals come in different types depending on the loan program the home buyers chooses
There are FHA Appraisals and Conventional Mortgage Appraisals and they are differences between them. FHA Appraisals can be used if the borrowers transfers the FHA into a conventional loan. However, a conventional loan cannot be transferred if the borrower converts to an FHA loan.
FHA Home Appraisal
Home Buyers 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 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.
- Lenders order appraisals through an Appraisal Management Company
- The main difference between FHA appraisals versus conventional appraisals is that FHA appraisals has 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.
Appraisal Requirement By Mortgage Lenders
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 determining the value of the property by the appraiser
- The appraiser will make pricing adjustments based on the positive and/or negative factors on 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 homeowners investment
- An FHA appraisal is for Borrowers qualifying for an FHA loan
- Conventional Appraisals is for borrowers seeking conventional loans
Most home appraisals are similar to each other. However, there are minor differences between FHA appraisals versus conventional appraisals.
Conventional Loan Appraisals
Fannie Mae and Freddie Mac are the two mortgage giants that sets standards on Conventional Loans.
- Conventional Loans, also called Conforming Loans, need to conform to Fannie Mae and/or Freddie Mac Guidelines
- Conventional Loans are not guaranteed by the government like FHA, VA, USDA Loans are
- Conventional lenders will require a conventional loan appraisal
- Main purpose for a conventional appraisal is to determine the value of the property and its condition
- There is not much difference between FHA appraisals versus Conventional loan appraisals
- Conventional Appraisals normally concentrates on the value and condition of the property
Conventional loan appraisals are less restrictive than FHA appraisals.
Main Points Stressed In FHA Home Appraisals
FHA appraisals are much more stricter with safety of property such as the following:
- Function of electronic appliances
- Peeling paint
Main Difference Between FHA Appraisals Versus Conventional Loan Appraisals
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, 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 subject property is safe and secure with no hazards nor building violations.
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 focuses on the way they view that all FHA insured mortgage loans needs homes that meets the minimum standards of 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
- 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 a FHA appraiser can approve and sign off the appraisal.
FHA Appraisals Versus Conventional Loan Appraisals And The Focus On Conventional Loan Appraisals
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 a FHA insured mortgage loan on that particular subject property
Correction Violations After The Appraisal
Fortunately, just because the property does not comply with FHA guidelines with 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
- Re-Inspection fee is required
Can FHA And Conventional Appraisals Be Transferred?
If a home buyer has a home appraisal and want to transfer their loan to another lender, can the home appraisal be transferred?
- A FHA home appraisal can be transferred from one lender to another in the event if 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
- A FHA appraisal can be transferred to Conventional home appraisal
- However, a Conventional Home Appraisal cannot be transferred to a FHA appraisal if the mortgage borrower decides to change loan program from Conventional Loan to FHA Loan