FHA financing gives you a flexible option for home financing. One of the largest aspects of the loan is the appraisal. Understanding the FHA appraisal guidelines can help you make the most of the process.
Any home you buy with FHA financing will have to go through the FHA appraisal. This means using a HUD-approved appraiser. The appraiser looks at the home in comparison to other homes in the area that sold recently. However, the appraiser also has a long list of requirements the FHA requires in order to pass the appraisal. The appraiser’s job isn’t just to find the value of the home, but also to make sure the home is safe, sanitary, and livable.
How the Appraisal Works
First, let’s look at how an appraisal works. A professional appraiser will come out and look at the home. This is not to be confused with an inspection. That is when an inspector comes out and looks at every aspect of the home and if it’s in proper working condition. The appraiser looks at the surface of things throughout the home. He would notice things like holes in the wall, lights not working, or a broken faucet. He probably would not notice things like a leaking pipe or mold in the attic.
Once the appraiser evaluates the home, he then compares it to homes that sold recently in the area. His job is to choose homes that are of similar size and have similar features. However, he is also supposed to use homes that sold within the last six months. Any differences that he finds between the homes, he makes adjustments to the home’s value.
What Does the Appraiser Do?
While the appraisal isn’t an inspection, per se, the FHA appraisal guidelines make it a cross between the appraisal and an inspection. The FHA appraisal shouldn’t be used as a substitute for an inspection, but it will give you a decent idea of the shape the home is in before you buy it.
The FHA appraisal is meant to give the bank and/or FHA a head’s up if there are any issues with the property. Typically, this pertains to safety or sanitary issues. Of course, if the appraiser finds that the home is not livable, that would affect the home’s ability to secure FHA financing.
The appraiser will do the following for the FHA approved lender:
- Inspect the property both inside and out
- Take photos for proof of the homes’ features and its condition/li>
- Locate comparable sales and take photos
The appraiser will then create the approval report for the lender.
What are the FHA Appraisal Guidelines?
As stated above, the FHA wants to make sure the home is safe and sound. In particular, the appraiser looks for:
- Enough living space for your entire family
- Easy access to the home from the street
- Accessible bedrooms that allow for easy escape in the case of a fire
- No lead based paint
- Safe stairways with properly installed handrails
- All heating elements in good working condition
- The roof is in good repair
- The foundation is in good condition
In addition, if the appraiser finds any issues that harm your safety or health, they will note them on the report.
Dealing With a Bad Appraisal
It’s a common myth that if an FHA appraisal comes back bad, the deal is dead. In reality, if the seller is willing to fix the issues the appraiser found, the deal might still go through. If there are issues that the seller cannot fix because they aren’t feasible, then the deal could fall through.
Otherwise, if the seller fixes the issues before the appraiser comes back for a final inspection, the deal could go through just fine. Of course, whether or not the seller fixes the issues depends on the complexity and cost of the repairs.
The FHA appraisal guidelines might seem unfair or as if the FHA doesn’t want you to have a loan. However, the opposite is true. HUD put the guidelines in place in order to protect you. By making sure the home does not have safety, soundness, or sanitary issues, you can rest assured that you are buying a good home. You are always better off safe rather than sorry with a large investment such as a home. Consider it like the FHA is protecting you financially.