FHA Home Appraisal Guidelines And Property Standard Requirements
This BLOG On FHA Home Appraisal Guidelines And Property Standard Requirements Was UPDATED On January 11th, 2018
FHA insured mortgage loans are mortgage loans that is insured by the Federal Housing Administration (FHA). FHA is not a lender.
- The United States Department of Housing and Urban Development (HUD) is the parent of FHA
- The role of FHA is to guarantee FHA Loans originated and funded by banks and private lenders. FHA Loans that default are guaranteed against losses by HUD
- As long as the lender is a HUD Approved lender and followed all HUD Guidelines when originating the FHA Loans, the lender will be guaranteed the loss due to borrower defaulting and foreclosing on their FHA Loans
Role Of FHA And HUD Guidelines
- In order to originate FHA insured mortgage loans, the mortgage lender needs to be a FHA registered mortgage lender
- FHA loans make home ownership possible to first time home buyers or home buyers who have less than perfect credit
- Borrowers with prior bankruptcy, foreclosure, deed in lieu of foreclosure can qualify for FHA Loans
- Borrowers can qualify for FHA Home Loans with a 580 credit scores 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, the home appraisal need to meet and qualify FHA mortgage lending guidelines
- One of those guidelines is that the subject property needs a FHA Home Appraisal
- Two things that are the most important factors in a FHA Home Appraisal is that the home’s value appraises out and that the home is secure and habitable
FHA Home Appraisal Versus Conventional Appraisals: Value, Safety, Security
FHA insured mortgage loans require the borrower to have a 580 credit score and requires 3.5% down payment and will lend up to 96.5% of the appraised value.
- In the event if the home does not appraise out, then the home buyer needs to pay for the difference
- For example, if buyer is purchasing a home for $150,000 and the FHA Home Appraisal comes out to only $100,000, FHA mortgage lender will only lend 96.5% of the appraised value or $96,500 and buyer needs to come up with the difference
- On the flip side, if buyer is purchasing a home for $100,000 and the FHA Home Appraisal is $150,000, FHA mortgage lender will lend borrowers 96.5% of the purchase price which on this case will be $96,500
FHA Home Appraisal Basics
A FHA Home 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 also 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 picky 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 the lender orders the FHA appraisal on a subject property but 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 home buyers get a low appraisal and mortgage lender will not allow to get another appraisal so the property can get a higher value
- Borrowers can change mortgage lenders and can order new 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
If the lender representing the home buyer knows that the FHA Appraisal is undervalued and has comparable sales to justify it, the lender can do two things:
- Do a FHA Appraisal Rebuttal
- Order a new FHA Appraisal
Appraisal Rebuttals are often very difficult unless there are strong comparable sales. If the appraiser will not change the value of an existing FHA Appraisal with solid comparable sales, the lender can order a new FHA Home Appraisal. However, the borrower cannot pay for the second appraisal. The lender needs to pay for the second FHA Appraisal.