Before the Federal Housing Administration (FHA) agrees to lend a buyer the money to purchase a home, the property must undergo an FHA appraisal, also called an FHA inspection. The FHA process is very structured, and the agency has specific guidelines that must be adhered to before a loan will be approved. These FHA appraisal guidelines will let you know what to expect during the appraisal of the home you want to buy. If you're a seller, you can take steps to ensure an FHA inspection will not cause the rejection of your potential buyers.
Q: Does FHA require an home inspection?
A: FHA does not require a home inspection. There's a HUD disclosure that says you should get one for your protection that you will need to sign if you're planning on not getting one, but an home inspection is not required. They do require an appraisal on purchase transactions. Some people refer to this appraisal as an inspection, but it is not a full home inspection.
Understand the Inspection's Purposes
It lets the agency know the current market value of the home, regardless of what it sold for in the past or might sell for in the future. It determines whether the house and property meet minimum U.S. Department of Housing and Urban Development (HUD) living standards.
Champ Tip:
HUD-approved, licensed inspectors who are experts in assessing needed criteria are the only ones who perform FHA appraisals.
Determine Current Market Value
The current market value of the home will be determined by comparing recently sold similar homes in the area. The appraiser will try to get an apples-to-apples list of recent sales, in which the homes have the same number of bedrooms and bathrooms.
Loan limits through FHA take the area's cost of living into account. For example, San Francisco has one of the highest costs of living in the nation. Therefore, FHA will loan up to $726,525 for a single-family dwelling. That amount increases for multiple family listings with the limit being a four-plex, for up to $1,397,400 as of 2019.
Get Acquainted With Inspector Photos
Your appraiser will take the following photos:
the back, sides & front of the home, any pools, decks, or other value-increasing improvements to the property, each home used in the comparable home appraisal list to determine current market value. Naturally, the appraiser can't walk through the yards, but can get a front and often a side view of each home as well as photos of the sale amount from listing sites or public records, a copy or photo of an aerial street map to show the location of the home that is the focus of the inspection in relation to the area's comparable homes.
If the home is going to be new construction, the photos focus on the lot grade (elevation levels).
The Nuts & Bolts Matter
The appearance of the house is essential to its value, but so are the basic, behind-the-scenes players who keep things working well. The appraiser will examine the following:
Heating and Cooling system (if there is a cooling system)
Roof
Crawl spaces
Foundation
Mechanical systems of any kind
Lot grade
Ventilation ability
The condition of the paint on the walls
The condition of bathroom and kitchen fixtures and appliances
The condition of window frames and sills
The condition of the driveway and the grade of the driveway
These need to be in good working order or the FHA may not approve the loan.
FHA Safety Checks
The rest of the inspection will focus on any potential safety issues that may be present. For example, there must be a handrail on every staircase, both inside and outside the home. The property must slope away from the house so that water does not run into the foundation, basement, etc. when it rains.
Every bedroom must have access to the outside of the building. This can be and often is a window, which will pass as long as it allows the average person to fit through and escape in an emergency, such as a fire.
Damaged or peeling paint must get repaired before loan approval. This is due to lead paint that was common before 1978 posing a safety hazard.
The foundation has to be free of significant cracks or problems.
Safety hazards: An appraiser would inspect the property for potential safety hazards such as asbestos. In the event that the inspector finds asbestos that may be damaged, an asbestos expert must conduct another examination. Some hazards are not obvious such as contaminated soil.
Community Details Can Improve Value
There are many areas that the appraiser is required to note, though many will not be a deal-breaker for the loan. These notes will, however, affect how the appraiser determines the current market value of the property.
The checklist for the appraiser goes beyond looking at the building. The FHA wants to know of anything that makes the property desirable. Examples that the inspector might note include:
A great view
Beautiful woods or open space out back that are protected from development
Excellent traffic flow in the area
Accessible churches, parks, schools and job opportunities
Is the neighborhood improving or declining in general?
Will the average family be able to travel easily to work, school and shopping?
Is there adequate public transportation or if not, are the streets well-designed for easy navigation?
Any excessive noise, noxious odors or other elements in the neighborhood that would endanger the physical improvements of the home or its residents can cause rejection by the FHA. Being near an airport is fine as long as it is evident that those in the area have learned to live with the noise and that it does not impede the marketability of the land.
FHA Allows Repairs
A house has to be in decent shape, both inside and out, to pass an FHA appraisal. If there are any safety issues, they should be fixed before the appraisal if possible. Otherwise, the appraiser will leave a copy of all things noted and the seller will need to make the repairs for the financing to happen.
Things such as cracked driveways, window damage or doors that stick to the point of not opening will cause issues during the appraisal. While FHA used to reject the site, current guidelines allow for the seller to repair the problems and, if completed, the loan can move forward.
FHA Repairs That Must be Completed Prior to Settlement
Keep an eye out for the following conditions on or in a prospective property:
Peeling paint in homes built before 1978, which might be a lead hazard
Unpainted downspouts and broken rain gutters
Rotting outbuilding in need of demolition
Exterior doors that don't properly open and close
Exposed wiring and uncovered junction boxes
Major plumbing issues and leaks
Inoperable HVAC systems
Leaky or defective roofs
Roofs with a life expectancy of less than three years
Roof composition over shake
Active and visible pest infestation
Rotting window sills, eaves, or support columns on a porch
Missing appliances that are usually sold with a home, such as a stove
Bedrooms without minimal-sized windows for egress or windows with bars that don't release
Foundation or structural defects
Wet basements
Evidence of standing water in the crawl space
Inoperable kitchen appliances
Empty swimming pools, pools without working pumps, and abandoned pools with mosquitofish
Ripped screens
No pressure relief valve on the water heater
Leaning or broken fences
Repairs That Are Not Necessary to Fix Before Settlement
Some repairs don't have to be completed prior to closing, but you'll still want to keep track of them for future reference:
Peeling paint in homes built after 1978
Cracked glass in windows
Minor plumbing defects, such as a dripping faucet
Missing handrails
Damaged wall coverings in homes built after 1978
Worn out carpeting or defective floor finishes
Beat-up or damaged exterior doors that still open and close
Tripping hazards, such as heaving sidewalks
Removal of debris under the house
Poor workmanship
Evidence of previous or inactive pest infestation
Replacement of flat roofs
Testing of wells, unless it's required by local jurisdictions or if the water is suspected of contamination
And Finally
The FHA isn't concerned with cosmetic defects. Normal wear and tear won't throw up a red flag, provided that it doesn't interfere with the soundness, security, or safety of the dwelling.
