May 18, 2011
A frequently asked question about the FHA appraisal process is, “What are my options for satisfying repair requirements on the appraisal?”
According to FHA guidelines, any repairs required on the FHA appraisal report must be “satisfied” before the loan is submitted. There are four ways to satisfy the repair requirement–showing documentation to attest that the requirements have been met once the actual work has been done, including a Compliance Inspection Report, a Fannie Mae Appraisal Update (or a Completion Report), a Mortgagee Certification, or funds placed in escrow for the purpose of satisfying the repairs at a later date.
Each one of these has its own requirements and situational application. For example, a Compliance Inspection Report must, according to the FHA official site, be “prepared by an appraiser or inspector” to state that all required repairs have been completed.
Some repairs require structural skill or specialized knowledge, so FHA rules have additional steps needed in those areas. “For inspections that require architectural expertise (structural or system repairs), a FHA fee inspector must complete Form HUD-92051. In addition, a professionally and/or appropriately licensed, bonded, registered engineer, or home inspector or tradesperson (as applicable), can provide documentation to support that the deficiencies have been corrected.”
The FHA offers a list of approved inspectors at the FHA Connection website at https://entp.hud.gov/clas/.
Another report, the Fannie mae Appraisal Update and/or Completion Report can be submitted for FHA loans with case numbers assigned on or after February 15, 2010. This paperwork is used “to report completion of repairs and/or satisfaction of conditions for appraisals that meet the criteria set forth in ML 09-51 and which do not require architectural expertise.”
For minor repairs, the Mortgagee Certification can be used. FHA rules state, “If a homeowner can complete the work as normal maintenance, FHA considers the work minor.” There’s some obvious flexibility in the interpretation of those rules, but if a homeowner can accomplish such minor work, this type of certification can be used.
In some cases, weather conditions may not allow for immediate completion of some repairs, especially where new construction projects are concerned.That’s where escrow of funds comes in. According to FHA requirements, “it is not always necessary to complete all new construction items or required repairs (such as landscaping or exterior painting) before submitting the mortgage for insuring. In some cases, funds may be escrowed, and FHA will accept a Mortgagee’s Assurance of Completion, Form HUD-92300, at insuring.”
In these cases the property MUST be safe, habitable, and the work must be completed within six months. FHA rules also require the property to be “essentially complete.”
Joe Wallace has been specializing in military and personal finance topics since 1995. His work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and a member of the Air Force Public Affairs Alumni Association. He was Managing editor for www.valoans.com for (8) years and is currently the Associate Editor for FHANewsblog.com.
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