Difference Between FHA Appraisals Versus Conventional Appraisals

This BLOG On Difference Between FHA Appraisals Versus Conventional Appraisals Was UPDATED On December 14th, 2017

All home buyers who need financing on a home purchase will need a home appraisal required by their lenders.

  • Home Appraisals are mandatory and required by lenders and 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

Home Buyers who are seeking a FHA insured mortgartgage lender needs to order a FHA appraisal.

  • 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

Appraisal Requirement By Mortgage Lenders

Every mortgage lender will require a 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 mortgage lender
  • The main focus of an appraisal is to determine the value of the property
  • It offers a sense of security for the mortgage lender lending the mortgage loan to the borrower because it is the only instrument used to protect both the lenders and homeowners investment
  • A FHA appraisal is for FHA Borrowers 
  • Conventional Appraisals is for borrowers seeking conventional loans
  • There are 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 mortgage loan lenders will require a conventional loan appraisal
  • Main purpose for a conventional mortgage loan appraisal is to determine the value of the property and its condition
  • There is not much difference between FHA appraisals versus Conventional loan appraisals is that conventional loan appraisals
  • Conventional Appraisals normally concentrates on the value and condition of the property

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 FHA insures its mortgages on behalf of mortgage lenders FHA qualified and approved mortgage loan borrowers, it sets its own guidelines and rules pertaining to appraisals as well as other guidelines
  • FHA as well as its mortgage lenders order appraisals to make sure the value of the subject property is in line with the purchase price and that the subject property is safe and secure with no hazards nor building violations

Safety And Security Focus On FHA Insured Mortgage 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.

  • FHA requires that the home have minimum standards of living which involve the overall safety and security of the homeowner and its occupants
  • FHA 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 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
  • The mortgage loan borrower may not get approved for a FHA insured mortgage loan on that particular subject property
  • 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 and a re-inspection by the FHA appraiser is allowed
  • Re-Inspection fee may be 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
The information contained on Gustan Cho Associates website is for informational purposes only and is not an advertisement for products offered by The Gustan Cho Team @ Gustan Cho Associates or its affiliates. The views and opinions expressed herein are those of the author and/or guest writers of Gustan Cho Associates Mortgage & Real Estate Information Resource Center website and do not reflect the policy of Gustan Cho Associates Lenders Network, its officers, subsidiaries, parent, or affiliates.

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