June 12, 2024
The FHA appraisal is one of the most important pre-closing day aspects of your home loan process.
Without an appraisal, your lender can’t know if the home meets minimum basic standards for safety, remaining economic life, and serviceability.
The lender also can’t make a realistic judgment about the fair market value of the home without an appraisal. What should you know about this process and how it affects you?
FHA appraisals are a tool for the lender and not a tool for the borrower. You may be privy to the results of the appraisal, but that does not mean it was designed to help you as a borrower.
It is not meant to tell the borrower anything actionable, especially where the condition of the home is concerned.
That is the job of the optional, borrower-arranged home inspection. The home inspection is a top-to-bottom review of the home specifically meant to assess the condition of the property so the borrower can make an informed decision about purchasing the property or not.
FHA appraisals are arranged by the lender and the appraiser delivers the completed report to the lender. The lender reviews the appraisal report and notes any corrections or repairs that may be required for the home to be approved for an FHA mortgage.
In cases where the appraisal does require a correction (or multiple ones), there is typically a requirement to have these done by closing day unless there are other arrangements that are made between the borrower and lender.
One very important thing to keep in mind about this process? If corrections are required you may need to pay an additional fee for a compliance inspection to ensure the corrections that were made are up to state or local building code. Keep that expense in mind when budgeting for your home loan.
You may not have to pay for that inspection. If the appraisal process has no corrections required, the inspection would not be needed and you can keep the money you saved for that expense to use in other areas.
Some appraisal issues cannot be corrected. A home that is too close to a high-pressure gas pipeline easement or one that has high voltage wires cutting across the property may not be approved for an FHA mortgage.
The same is true of houses located in certain coastal barrier areas or high-risk locations.
When the results of the appraisal come in, if you don’t agree with them you may have recourse but in general, a re-appraisal is not possible just because there is a difference of opinion on the value of the property.
If there were what the FHA calls “material deficiencies”, a new appraisal may be possible but there is a burden of proof in such cases that may need to be satisfied to show that the contested appraisal did indeed have problems that need addressing.
Bruce Reichstein has spent over three decades as an experienced FHA and VA home loan mortgage banker and underwriter where he was responsible for funding “Billions” in government backed mortgage loans. He is the Managing Editor for FHANewsblog.com where he educates homeowners on the specific guidelines for obtaining FHA guaranteed home loans.
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