What Is an FHA Home Appraisal?
FHA Home Appraisals Are Required for New Purchase Mortgages and FHA Refinance Loans
New purchase loans require the lender to determine the fair market value of the property. The appraisal helps the borrower know whether the asking price of the home is higher than it should be compared to similar homes in the area, but the FHA appraisal is not a tool for the borrower.
The home appraisal is intended to let the lender know the home meets minimum FHA requirements and local building codes, as well as establish the fair market value.
Appraisals are required for any FHA loan that is based on the market value of the home such as a new purchase or cash-out refinancing.
FHA home appraisals are also required for FHA Reverse Mortgages, since that type of loan is also dependent on the market value of the home.
FHA Appraisals are Not Home Inspections
One mistake some borrowers make is assuming that when a property has been appraised that it has also been inspected. This is NOT TRUE. Do not use the appraisal as a standard of measure or a seal of FHA approval when asking, “Should I purchase this home?” You are likely to wind up disappointed by the results.
The FHA official site warns house hunters never to take an FHA appraisal as an inspection-it is not a complete review of the home in search of any or all defective conditions.
If you purchase a home without paying for the optional (but extremely important) home inspection you are basically doing the same thing as buying a used car without taking it for a test drive.
FHA Appraisals Are a Routine Home Buying Expense
The cost of an FHA appraisal will vary depending on the housing market and other factors. Borrowers should be prepared to pay the cost of both an appraisal AND the optional home inspection (see above) as part of the home buying budget in addition to any required taxes, broker fees, lender fees, etc.
FHA Appraisals Don’t Get a “Do-Over” if the Results Don’t Agree With the Price
FHA loan rules say the appraiser must establish the fair market value of the property using a set of criteria based on FHA minimum standards, but also according to similar properties in the housing market.
These are known as comparables and if the home you want appraises higher or lower than you or the seller expects, you cannot ask for a do-over just to get a better valuation of the home.
You CAN address issues related to the competency of the appraisal or its’ accuracy, but to simply ask for another look just because the dollar amount isn’t “right”? Not allowed according to FHA loan rules.
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