FHA Appraisal Guide: What You Need To Know

FHA mortgage appraisals are more rigorous than standard home appraisals. Whether you’re looking at refinancing an FHA loan, buying a house with an FHA loan or even selling to someone who will be using an FHA loan, you’ll want to understand what these appraisals entail.

In this article, we’ll cover the ins and outs of what an FHA appraisal is and why it comes with stricter requirements, as well as detailing the key safety hazards that cause the FHA to reject a loan after an appraisal. We’ll also help you identify steps you can take as a buyer, seller or refinancer to help make sure the stricter requirements don’t get in your way.

What Is An FHA Appraisal?

An FHA home loan is backed by the Federal Housing Administration. This means the government insures the loan so there is less risk for the mortgage lender in case the borrower defaults. These loans were created in response to a wave of foreclosures in the 1930s and are still very popular, especially for first-time home buyers.

Because the FHA is playing an enabling role in the purchase mortgage or refinance process of individuals with an FHA loan, they want to make sure they’re not helping people finance ownership of a property that will put them in physical danger.

If you’re buying a home with an FHA loan or applying for an FHA refinance, you’ll have to get your home appraised by a special FHA-approved appraiser. This appraiser will look at all the factors a regular appraiser does, like confirming the market value of the home and evaluating the physical condition of the property. They'll also make sure the house meets certain safety and livability standards.

Although the FHA appraisal guidelines have developed a reputation for being unnecessarily strict, the standards have relaxed, and today most requirements can either be met easily or relate to major hazards that most home buyers and homeowners should not ignore in any circumstances. FHA appraisal reports do not go into as much depth as a standard home inspection does and usually only includes readily observable problems.

Guidelines For Meeting FHA Appraisal Requirements

The U.S. Department of Housing and Urban Development (HUD) created the Single Family Housing Policy Handbook to explain the minimum property standards used by the FHA. These requirements cover safety, security and soundness. To make sure the property meets all three categories, the FHA appraiser will fill out the Uniform Residential Appraisal Report.

This form includes detailed information about the property like the number of rooms, square footage and the year it was built along with any notes on damage, needed repairs or safety concerns. The appraiser will also look for specific hazards such as:

• Exposed studs or floorboards
• Wiring and electrical problems
• Lot grading that doesn’t allow water to drain away from the house
• Insufficient heating systems
• A foundation in visibly poor repair
• Water damage
• Holes in the roof or siding
• Incomplete renovations
• Missing handrails
• Major driveway or sidewalk damage
• Crawl spaces with debris
• Extremely worn or rotten countertops
• Termite damage
• Chipping or peeling paint in houses built before January 1, 1979

It's not possible to provide a comprehensive list of all factors that could result in the FHA rejecting the loan due to the appraisal. The key principle to keep in mind is that if anything could make the house unsafe, you run the risk of failing the home appraisal.

If, as a seller, you’re worried that a sale might fall through due to what an FHA appraisal might find, talk to your real estate agent. You’ll also want to do some preliminary research into any known issues with your home. Dig up the inspection report that you received as a buyer and see what it contains and call some contractors for quotes on some of the more serious issues if they’re present.

FHA Appraisal FAQs 

While an FHA appraisal can sound intimidating, it doesn’t have to be. By taking the time to learn more about the guidelines, you can better prepare yourself and your home. Below are some common questions home sellers and buyers typically have about this type of appraisal.  

Why do I have to get an FHA appraisal?

FHA loan requirements are often easier to meet because they don’t require a high credit score and have a lower down payment limit compared to conventional mortgages. Unfortunately, an FHA loan also has stricter appraisal requirements that buyers have to meet.

Any home that is bought or refinanced with an FHA loan (with the exception of some FHA Streamline refinances of prior FHA loans) has to be approved by the Federal Housing Administration. The FHA appraisal process helps to confirm the value of the home and that the property meets minimum safety standards.

What happens if the FHA appraisal uncovers problems?

The appraiser will note any problems their inspection has uncovered. The FHA underwriter will then decide whether these problems cause the home to not meet FHA standards. If they do, the FHA will allow 120 days for repairs to be made before you have to get a separate appraisal.

Repairs affecting the health, safety and livability of the property for occupants need to be completed prior to close. Typically, it will fall to the seller to pay for necessary repairs if they want the transaction to go through. Buyers will likely not shoulder the risk of repairing a home before they own it. However, this is something that can be negotiated in purchase agreements. If a bank is acting as the seller, they'll be unlikely to make repairs, and the deal will be canceled.

Can the buyer make repairs to the home in order to pass the FHA appraisal?

One solution that can allow the buyer to make repairs is to switch from a standard FHA loan to an FHA 203(k) loan, which bundles the repair costs into the loan itself. Switching from an FHA loan to an FHA 203(k) loan, for this reason, is relatively common.

However, buyers who are interested in fixer-uppers may choose this program from the start to save themselves inconvenience and delays. By the same token, those looking to refinance a home that possesses features that the FHA might deem hazardous may want to look into an FHA 203(k) refinance. Rocket Mortgage^Ⓡ doesn’t offer FHA 203(k) refinances at this time.

How long does an FHA appraisal take?

Usually, the appraisal will occur within a few days to a week after the seller accepts the buyer’s offer and the mortgage lender is notified. Of course, this timeline could depend on the lender’s process and the FHA appraiser’s schedule. Due to the rigorous nature of the assessment, an FHA appraisal typically takes several hours to complete, depending on the size of the property and the availability of comparable homes.

How long does it take to close an FHA loan after the appraisal?

Once you get your FHA appraisal, you have to close your loan within 180 days. The original appraiser will come out and verify that the repairs have been done and that your property can be valued as it was originally.

The FHA requires that this must be done by the original appraiser. If the appraiser is not available or if the process has taken more than 120 days, a new appraisal must be ordered.

Who pays for the FHA home appraisal?

As with most types of loans, the buyer will have to cover the appraisal cost. The price varies on the location and condition of the property, but it’s typically anywhere between $300 and $600 - though it could cost a lot more if you live in a high cost area, have a large house or have unique home features that are not easy to find comparables to. Your lender will add this charge to your closing costs, which you will pay when you finalize the loan and give the lender your down payment.

The Bottom Line: Look Ahead To Keep FHA Appraisals From Throwing A Wrench In Your Plans

Whether you’re buying, selling or refinancing, you’ll want to plan around any FHA appraisal in your future. For buyers and refinancers, switching to an FHA 203(k) loan might be worth considering. If you’re a seller thinking about whether to accept an offer, looking into the repairs you would have to make to meet the FHA’s standards could save you a great deal of disappointment, frustration and delay.

If you have further questions about how an FHA loan will affect your refinance or your home buyer’s journey, talk to a mortgage expert today. You can also give us a call at (833) 326-6018.