June 2, 2015
When you want to buy a home with an FHA mortgage loan, the appraisal process is an important step towards getting the loan approved. The lender is required to determine the loan amount based on the lesser of the appraised value or the sales price of the property.
And while borrowers should not confuse the required FHA appraisal with the optional, but still crucial home inspection process, it’s important to know how the FHA defines and views the appraisal in the home loan process. FHA loan rules for appraisals are currently found in HUD 4155.2, Chapter Four. In that chapter, under a heading titled “Purpose of a Property Valuation”, we find the following:
The purpose of the property valuation process is to:
–determine eligibility for mortgage insurance based on the condition and location of a property, and
–estimate the value of the property for mortgage insurance purposes.
The appraisal is the lenders tool for making this determination.”
The guidelines for the FHA appraisal process vary depending on the nature of the property. New construction homes must meet all applicable state/local building code and comply with the standards found in 24 CFR 200.926d. Existing construction properties must also meet applicable building code and the minimum standards found in HUD 4905.1, Requirements for Existing Housing One- to Four-Family Living Units, Appendix D.
The standards for manufactured homes and mobile homes include meeting code, plus the requirements found in publication HUD 4930.3G, Permanent Foundations Guide for Manufactured Housing.
FHA loan rules say that not all properties are eligible for an FHA appraisal. A condo unit that does not meet FHA standards (including being on the FHA’s approved list and not having restrictions on the borrower’s ability to sell the home) cannot be appraised.
The appraiser will determine the fair value of the home based on how it meets minimum standards, plus compare the home to other comparable properties in the area. Appraisal results do not affect the fee–an appraisal fee is due regardless of the outcome since the fee is due for services rendered. A refund is not possible for an appraisal that has been performed even if the appraisal determination is such that the home is not eligible for an FHA mortgage loan.
Do you have questions about FHA home loans? Ask us in the comments section. Your comment is held for review prior to appearing on the website.
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.
Browse by Date: