August 3, 2017
FHA loan appraisals are a big part of the FHA loan approval process. Without the appraisal, your home loan application cannot move forward. The FHA appraiser compares the home you want to buy with an FHA loan to similar properties on the market and reviews the condition of the home to make sure it meets FHA minimum standards.
Once the value of the home has been established, your lender can determine what your FHA loan amount should be, factoring in the amount your required down payment, plus the amount of any extras you choose to have financed into the loan (such as the Up Front Mortgage Insurance Premium).
The FHA appraiser will visit the property-there is a requirement that the appraiser be physically present-to look at the home inside and out. However, there is no requirement that the appraiser step onto the roof or be an expert in electrical systems, plumbing, etc. All that is required is a visual inspection to make sure things work properly, that there is no excess moisture or leaks, and that the home is not too close to high voltage power line easements or high pressure gas pipelines, etc.
The visual inspection of the property may include taking photographs, writing notes, etc. But it does not include up close inspections of the roof or running tests on the electrical system to see how much of an electrical load the home is capable of handling. If the appraiser notices frayed wires in the electrical system, that may be grounds for requiring a correction in that area. But a detailed, time consuming review of the electrical system won’t happen during the appraisal process.
Some areas where homes get “dinged” in this process are fairly common. A home built prior to 1978 with peeling paint is likely to have that paint issue listed as a required correction due to lead paint issues. Homes with visible roof problems will likely be required to have those corrected as a condition of loan approval, too.
But some appraisal issues are less obvious and depend on state or local ordinances. An appraiser who sees that a home is not in compliance with local code will require corrections to those code issues as a condition of loan approval, too. Building code compliance is an area not addressed in detail in the FHA loan handbook; the FHA does not keep copies of building code requirements and relies on the local authority instead.
The appraiser who notes defective conditions as mentioned above will make a report with instructions on what to correct and whether a follow-up inspection is required for loan approval. In some cases, the problems are able to be corrected, in others there may be no choice but to declare the home unsuitable for an FHA mortgage. Borrowers may not be able to do anything about where a home is situated, for example. If it is too close to certain types of flood zones, gas pipelines, or other known hazards, the loan may not be able to go forward.
Where fixes are possible, a compliance inspection may be required in order to show that the required corrections were made and that those fixes meet code requirements and other regulations. Borrowers shouldn’t worry that minor corrections will derail their home loan application; if the work is done to the appraiser’s satisfaction and meets code, the loan may be able to proceed without a problem.
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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