FHA Appraisal Rules You Need to Know

October 5, 2023

Whether you want to build a house on your own land, buy an existing suburban home, or if you want to apply for a home loan for a condo or mobile home, there is an FHA mortgage loan for you.

FHA mortgages have specific requirements the property must meet (or be repaired or renovated to meet) FHA appraisal standards and local building code requirements. The rules for FHA appraisals is found in HUD 4000.1, the FHA Single-Family Housing Policy Handbook.

When some people think about appraisals, they tend to gravitate toward one part of the process (the roof, the basement or crawlspace, etc.) but sometimes overlook the fact that such rules also affect things like the mechanical systems of the home.
 
Did you know that appraisal requirements for FHA mortgages include a requirement that the mechanical systems in the home such as heating and air conditioning must be in good repair and be sufficient to serve the home?

For mechanical systems in the home such as hot water heaters, air conditioning, and other areas, FHA guidelines cover what the appraiser should do when reviewing them.

What happens if there are problems or defects in this area? HUD 4000.1 tells the lender that, for example, the heating system must meet the following requirements, and corrections must be ordered if possible in order to obtain loan approval:

"The Appraiser must notify the Mortgagee of the deficiency of MPR or MPS if the permanently installed heating system does not:
 

• automatically heat the living areas of the house to a minimum of 50 degrees Fahrenheit in all GLAs, as well as in non-GLAs containing building or system components subject to failure or damage due to freezing;
• provide healthful and comfortable heat or is not safe to operate;
• rely upon a fuel source that is readily obtainable within the subject’s geographic area;
• have market acceptance within the subject’s marketplace; and
• operate without human intervention for extended periods of time."

FHA loan appraisal rules say that central air conditioning "is not required", so that is not an issue--but in cases where central heat and air ARE installed, they are required to be in working order.

Keep in mind that state and/or local building code rules must be satisfied according to HUD 4000.1. If you are not sure how appraisal rules affect your transaction, ask your loan officer about what is typical in your housing market--the issues and corrections that are most common and what the process is like in identifying and correcting appraisal concerns.

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