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If you want to finance a home using a Federal Housing Administration (FHA) loan, you'll need an FHA home appraisal that assesses your property's market value. FHA home appraisals come with strict inspection requirements for the property's structure, condition, systems (such as electrical or heating) and fixtures. The minimum property standards for these loans are determined by the U.S. Department of Housing and Urban Development.
An FHA appraisal helps ensure that the property you're considering is sound collateral for the lender and a safe place to live for you and your family. Here's what to expect if you're about to go through the FHA appraisal process.
What Is an FHA Home Appraisal?
An FHA home appraisal provides key information on a property's market value and condition. Home appraisals are a standard part of the loan approval process, whether a loan is backed by the FHA or not. Because mortgage lenders use property as collateral, they want an objective assessment of the property's value. An appraisal helps ensure the lender doesn't loan more money than a home is worth; it may also protect you, the buyer, from paying more than you should.
FHA loans have more detailed requirements than most conventional home appraisals. FHA home appraisals use the U.S. Department of Housing and Urban Development's minimum housing standards as a basis for determining both a home's market value and its livability. A home appraisal involves two basic steps: an analysis of the home's fair market value based on comparable sales and a walk-through inspection to assess the home's size, features and condition.
Learn more >> What Is an FHA Loan?
FHA Inspection Requirements
An FHA home appraisal involves an intensive property inspection. Appraisers take into account everything from the surrounding neighborhood to environmental hazards, the condition of the structure, interior features and systems and even appliances that are attached to the home. The goal is to size up the soundness of the property and its structures, and how well it would support the health and safety of its new potential owners.
Learn more >> How to Get an FHA Loan
Though this is far from an exhaustive list, here are some of the more common items on the FHA inspection checklist.
Exterior and Structure
The appraiser will evaluate the general soundness of the home's exterior and structure. Here are a few issues they may consider:
- Garage, dwelling and other improvements (such as fences) don't encroach on another property
- Overhead electric power lines don't pass directly over the home
- The property is accessible to pedestrians and vehicles
- Foundation and structure are sound and will be serviceable for the life of the mortgage
Utilities
Working utilities are a basic minimum requirement, including the following standards:
- Electricity is in good working order and is adequate to power the home
- The home has access to potable water and a hot water heater
- Home is connected to a public, offsite or approved onsite sewage system
Interior Systems and Features
The home's interior should be free of structural problems like leaks or decay. Additionally, home buyers should be able to depend on essential features, such as these minimum standards:
- Heating system is adequate to heat the whole structure
- Bathroom has a working toilet, sink and shower or bath
- The kitchen has, at minimum, a sink and stove hookup
- Appliances that will stay with the home are working
Hazards and Damage
Appraisals also report on potential hazards and damages, including water damage from leaky pipes or roofs, or environmental hazards like asbestos. Issues the appraiser may look for include:
- Lead-based paint
- Methamphetamine contamination
- Termites and wood-destroying organisms
Surroundings
The appraiser may also consider the area surrounding the property for issues that may affect the home's safety and livability, including:
- The economic condition and general upkeep of the surrounding neighborhood
- Safety and noise considerations if the home is near an airport
- Likely danger from flooding, lava flow or other natural disasters
Minor Issues
The FHA typically doesn't require sellers to make small cosmetic repairs that don't affect the safety or habitability of the home. For instance, a missing front door needs to be replaced; a door with a few dings and scratches will probably pass muster.
What Happens After the Appraisal?
Properties must meet FHA minimum requirements to be approved for an FHA loan. If an appraisal has uncovered problems that must be fixed in order for you to close the sale, you have a few options:
- Ask the seller to make the needed repairs
- Arrange to fix the issues yourself prior to closing
- Look for alternative (non-FHA) financing
- Find another property
Learn more >> Is an FHA Loan Worth It if You Have Good Credit?
In addition to negotiating repairs, you may need to address pricing issues if the market value on your appraisal comes in lower than your proposed sale price. If this happens, you may want to request an appraisal review or try re-negotiating with the seller. Your FHA appraisal is good for 180 days.
Do FHA Loans Require an Appraisal?
Most FHA home loans, refinances and reverse mortgages require an FHA appraisal. If you're interested in using an FHA loan to finance a home purchase, ask your lender about the appraisal process and how to find an approved HUD-certified appraiser. Costs for appraisals can vary; your lender or real estate agent can tell you more about costs in your area.
The Bottom Line
Going through the FHA appraisal process can be stressful, since problems or pricing issues can throw a wrench in your home purchase (or at least your FHA financing). Remember, though, that minimum standards and pricing guidelines are there to protect you, too. The time to find out about these issues is before your sale is finalized, when you still have time to renegotiate your sale price, address major repairs, walk away from a problematic property or (with any luck) enjoy a stamp of approval on your new home.