What does a FHA Appraiser Look for?

Logo of the Federal Housing Administration.

Logo of the Federal Housing Administration. (Photo credit: Wikipedia)

During the real estate boom leading up to the real estate bubble, home loans backed by the Federal Housing Administration, or FHA, made up only a small percentage of loans made.  This was due primarily to the higher priced homes exceeding FHA loan Limits. FHA’s popularity has grown in popularity with lower prices (loan limits are based on location) and a lot of consumers looking to buy property with a low down payment (only 3.5%).  Sellers can also pay up to 6% in closing costs.  Most lenders require a credit score of at least 640.  However, this depends on the lender and can change based on a variety of factors.  With the new FHA rules that require mortgage insurance over the entire term regardless of loan-to-value, a conventional loan is a home buyer’s best option (if they can qualify for it).  Although FHA loan is still the easiest to qualify for, it requires more stringent benchmarks than a conventional loan.  The FHA requires the lender to conduct an appraisal to:

  1. Estimate the value of your potential new home
  2. Make sure it meets minimal FHA standards
  3. Ensure that it will be marketable

Appraisals are different from home inspections.  Home inspections give more detailed information about your potential new home.  According to HUD, to meet the FHA criteria, a property must minimal standards included on the Valuation Conditions Form and are summarized as follows:

  • Site Hazards (i.e. sink holes, minimal proximity to operating and abandoned oil or gas wells, excessive noise, etc.)
  • Soil Contamination (i.e. On-site septic shows observable evidence of system failure, Proximity to dumps, landfills, industrial sites or other locations that could contain hazardous materials, etc.)
  • Grading and Drainage Problems (i.e. Grading does not provide positive drainage from structure and Standing water proximate to structure)
  • Well, Individual Water Supply and Septic Problems (If the property lacks connection to public water, the lender will require a water test. Connection should be made to public or community water/sewage disposal system. Estimate distance to sewer or water hook-up and whether hookup is practical. FHA requirements even require a minimum distance between the septic and well.)
  • Wood Destroying Insects (i.e. Structure and accessory buildings are ground level and/or wood is touching ground; and/or the house and/or other structures within the legal boundaries of the property show obvious evidence of active termite infestation.)
  • Private Road Access and Maintenance Problems (i.e. Property inaccessible by foot or vehicle, accessible only by a private road or drive, etc.)
  • Structural Deficiencies (i.e. Significant cracks in floor support systems and framing/walls/ceiling, significant water damage, etc.)
  • Foundation Deficiencies (i.e. Significant cracks or erosion in exposed areas that could effect structural soundness, evidence of significant water damage, etc.)
  • Roof Deficiencies (i.e. Roof has to have at least two years remaining life, no signs of leaks, all flat roofs require inspection, etc.)
  • Mechanical Systems Problems (i.e. Air Conditioning/Heating System turns on, no irregular noises are heard, unit does not shut down prior to reaching desired temperature, no exposed or frayed wiring, no plumbing leaks, no hot water, etc.)
  • General Health and Safety Deficiencies (i.e. Broken windows, broken or missing exterior stairs/doors, etc.)
  • Deteriorated Paint (i.e. Peeling, scaling or chipping paint for homes built before 1978)

Not to minimize any of the previously mentioned items, the main factors that can stop or delay closing on a FHA loan by an appraiser is whether the property is on septic and well rather than public utilities, the remaining life of the roof, and exposed wiring.  For example, there is the additional cost and time to get a water test as well as estimating the cost to connect to public or community water/sewage disposal system.

If you are interested in buying a new home or any other home (new or existing), please contact me (Alan Lane with Keller Williams Realty at 2119 W Brandon Blvd, Brandon, Florida  33511) and I can help you find a new home in the Tampa Bay Area.  My email address is alanlane66@gmail.com or call me at 813.205.9280.  If you are just starting your search, you can search the MLS for homes on my website at this link.


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