FHA Home Appraisal Information

The appraisal and property condition assessment is used to determine the market value and acceptability of the property for FHA mortgage insurance purposes. The value serves as a basis for determining the maximum FHA insurable mortgage loan. The appraisal is performed for the use and benefit of HUD, and the lender involved in an FHA transaction. In addition to providing an estimate of value, the appraisal provides an examination of the property for any visible, obvious and/or apparent deficiencies that may affect the livability of that property in terms of basic needs, health and safety of the property's occupants. HUD/FHA MAKES NO WARRANTIES AS TO THE VALUE AND/OR CONDITION OF ANY FHA-APPRAISED PROPERTY, therefore buyers/borrowers must determine for themselves that the price of the property is "reasonable" and that it's condition is "acceptable". - www.hud.gov

An FHA appraisal is one of the most important parts when acquiring an FHA mortgage. Without a strong FHA appraisal the chance of obtaining an FHA loan is extremely low. However, in December 2005 FHA made a number of changes to their requirements, allowing for "As Is" appraisals, even if minor defects to the property condition exist.

Requirements for FHA appraisals may be lightened slightly but there are still a number of conditions remaining.
1) You must use an appraiser from FHA's approved list.
2) The broker/lender must provide the appraiser with a case number for inclusion on their report.
3) Major deficiencies in the property's condition still require a cost to cure.

It is always best to let the lender select the appraiser but even more so if you are getting an FHA appraisal because the appraiser must be well versed in FHA requirements. When using and appraiser from the banks approved appraiser list, the chance of your appraisal getting approved is much higher.

Further Details of FHA appraisal changes:
FHA appraisals occurring on or after January 1, 2006 now only require repairs for conditions that rise above cosmetic defects, minor defects, or normal wear and tear. Appraisers must report ALL deficiencies but lenders can use professional judgment and prudent underwriting practices to determine when a property's condition is a threat to safety or jeopardizes structural integrity.

This is a list of examples that no longer require automatic repair to existing properties, but are not limited to:
1) Missing handrails
2) Cracked or damaged exit doors that are otherwise operable
3) Cracked window glass
4) Defective paint surfaces in homes built after 1978
5) Minor plumbing leaks such as faucets
6) Worn or soiled floor coverings or finish
7) Rotten or worn out counter tops
8) Damaged plaster or sheet rock or other wall and ceiling material on homes constructed after 1978
9) Poor workmanship
10) Trip hazards such as sidewalks or badly installed carpet
11) Lack of all weather driveway surface

Examples of conditions that may be of risk to health and safety of occupants or soundness of property that continue to require automatic repair, but are not limited to:
1) Inadequate access/egress from bedrooms to exterior of home
2) Leaking or worn out roofs
3) Structural problems such as foundation damage caused by settlement
4) Defective paint surfaces in homes built before 1978
5) Defective exterior paint on homes built after 1978 where finish is unprotected

FHA Inspection Requirements
FHA no longer mandates automatic inspections for the following items and or conditions in existing properties:
1) Wood Destroying insects: only required if there is evidence of active infestation or appraiser states a need for one, mandated by state or local jurisdiction, or at lenders discretion
2) Well (individual water system): It is required if mandated by state/local jurisdiction, if suspect of contamination or requires purification system, or when there is evidence of: pipe corrosion, intensive agriculture, coal mining/gas drilling, dump, junk yard, land fill, gas station or dry cleaning operation with in 1/4 mile, or if there is a bad smell, taste, or appearance
3) Septic: only required if evidence of failure, mandate, or lenders discretion
4) Flat or unobservable roof

Examples of conditions that still require automatic inspection, but not limited to:
1) Standing water against foundation, or excessively wet basement
2) Hazardous materials on site
3) Faulty mechanical systems: electrical, plumbing, or heating
4) Structural failure: settlement or bulging foundation walls