May 16, 2021

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How to prepare for FHA appraisal requirements

If you are planning to buy a home with a federally secured mortgage that is insured by the Federal Housing Administration, the property must go through an FHA assessment to see if it meets certain standards and criteria.

A tall brick building with grass in front of a house: FHA ratings

© Construction Photography / Avalon / Getty Images
FHA ratings

These standards set by the US Department of Housing and Urban Development (HUD) in its Single Family Policy Handbook, are generally designed to make the property safe, solid and secure.


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What is an FHA Assessment?

FHA mortgages are home loans that allow a lower minimum credit rating and down payment than many traditional loans. These loans are funded by a bank or other mortgage lender but are backed by the federal government.

To buy a home with this type of loan, the property is whether it is a single family home, town house, or house Condominium, It must go through the FHA assessment process.

“To secure a mortgage, the government must ensure that the loan is a solid investment, which is why a special FHA-specific assessment is required,” said Christopher Linsell, The Close’s real estate coach. “This assessment serves two purposes: the first is to assess the market value of the home. The government will want to ensure that the loan amount they have secured is equal to or less than the market value of the home. The second is that it will also include the condition that it is Want to assess the longevity and quality of life of the house. “

How does the FHA assessment work?

A skilled FHA-approved appraiser will visit the property to check its condition including the interior, exterior and surrounding area.

The appraiser takes photos to document the condition of the property and, in the case of a single family home, fills out a form called the Uniform Residential Appraisal Report that describes the various features of the property. For a condominium, the appraiser creates an evaluation report for the condominium unit.

In addition to checking the condition of the house, the FHA appraiser will provide an opinion on the market value of the property.

If the property audit reveals issues that do not meet HUD’s acceptance criteria, the appraiser must specify the exact repairs required and the approximate cost of fixing the issues.

In some cases, an FHA appraiser may not be able to determine if a property really meets HUD standards and the mortgage lender may ask another qualified inspector to inspect the property.

What is the reviewer looking for?

An FHA appraiser observes, analyzes and reports whether a property meets HUD’s “Minimum Real Estate Requirements”, and in the case of a new build, the property must also meet “Minimum Real Estate Standards”.

As explained in HUD’s Single Family Home Policy Guide, the Minimum Real Estate Requirements are the FHA’s general requirements that all homes it insures are safe, sound, and secure. The minimum standards for real estate, on the other hand, are based on the specific regulatory requirements for the safety, solidity and security of new buildings.

HUD defines new buildings as properties under construction, planned buildings or properties that were built less than a year ago. Existing construction works are properties that have been 100 percent completed for more than a year or, if they were completed less than a year ago, were previously inhabited.

An appraiser’s observations are generally limited to easily observable conditions and do not correspond to the extensive inspection performed by a licensee House inspector during the home buying process.

“FHA appraisers need to make sure the property is in good working order,” said Ralph DiBugnara, President of Home Qualified. So that means things like electricity and utilities are working properly. They also focus on the health and safety of the home – for example, stair railings are safe and functional, stairs and outside walkways aren’t cracked or dangerous. They are, too, make sure you are safe that there are no chipped or damaged paint containing lead. All windows and doors must have safety releases and open properly. “

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FHA assessment requirements

Illustration by Hunter Newton / Bankrate

© Illustration by Hunter Newton / Bankrate
Illustration by Hunter Newton / Bankrate

The HUD Single Family Home Policy Handbook, which is difficult to read for the average home buyer, has a long list of conditions that are checked as part of the evaluation process.

In the case of new buildings, the appraiser’s assessment includes a search for faulty conditions such as:

  • Construction flaw
  • Proof of continued processing
  • Excessive moisture
  • leakage
  • Disintegrate
  • Termites
  • Lead paint and drywall

Additional requirements for a property (new or existing) are:

  • Continuous and adequate supply of safe and potable water with adequate pressure
  • Safe method of sanitation
  • Sufficient space for healthy and comfortable living conditions
  • Hot water
  • Sufficient electricity for lighting
  • Control gear
  • Solid foundation
  • No lead paint
  • Proper grading and drainage around the property

The evaluator’s assessment also includes on-site and off-site conditions. Off-site conditions that can be considered include factors such as heavy traffic, airport noise, and proximity to high pressure gas pipelines or overhead lines.

What does an FHA assessment cost?

A FHA evaluation costs Average $ 300 to $ 425, according to HomeGuide.

Prepare for an FHA assessment

While there isn’t much a potential buyer can do to prepare for an FHA assessment, sellers who go through this process can certainly do their homework to ensure that their property meets the HUD criteria.

“As a home seller, the best way to prepare for an FHA assessment is to visit the HUD website and review the minimum standards for real estate to make sure your home passes that exam,” says Linsell.

In general, you can expect an FHA assessment to be completed within a week.

What to do with the results

Once the FHA assessment is complete, the mortgage lender will review the report and based on the assessor’s recommendations, may require repairs to be completed.

“The assessment will detail exactly what needs to be fixed in order for the assessment to be FHA-compliant,” says DiBugnara.

The seller is usually responsible for repairs, unless otherwise stated in the sales contract. Some contracts provide for the property to be bought as it is, DiBugnara says. These repairs are expected to be completed before completion.

However, not all sellers are ready to make repairs. This means that as a buyer, you may have to keep looking for an FHA compliant property.

You also have the option to choose one FHA 203 (k) loanThis allows both the home purchase and required repairs to be funded through a single mortgage. Borrowers can perform a wide variety of repairs with an FHA 203 (k) loan. These corrections include structural changes, rebuilding, upgrading, and eliminating health and safety risks.

A final option, if your income and creditworthiness allows it, is to buy the home on a traditional mortgage.

Sometimes the estimated value is lower than the purchase price. In this case, the buyer and seller can choose to negotiate a lower price, or if the seller doesn’t want to settle for less – and there is one Assessment contingency – The buyer can go away.

It’s worth noting that a valuation can be valid for up to six months or more, especially in a market where home values ​​are not rising as quickly. In a hotter market, a rating may only be valid for three months before it becomes stale.

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