The FHA Loan Appraisal Process
FHA mortgage appraisal requirements are found in HUD 4000.1 and they are for all types of properties; proposed construction, new construction, and existing construction. Modular homes, manufactured housing, and similar homes also require an appraisal.
According to HUD 4000.1, “The Mortgagee must evaluate the appraisal and any supporting documentation to determine if the Property complies with HUDs Property Acceptability Criteria. Existing and New Construction Properties must comply with Application of Minimum Property Requirements and Minimum Property Standards by Construction Status”.
The FHA appraiser visits the site of the home, and the property is reviewed but is not “inspected” the way a proper home inspection would be carried out. The appraisal is never intended as a replacement for the borrower’s hiring of a home inspector to do a complete review of the property for defects, problems, code violations, etc.
The appraiser reviews the parts of the home that are readily accessible and in some cases defective conditions or problems which need correcting may be noted. In such cases, HUD 4000.1 instructs the lender and the appraiser, “The Mortgagee must evaluate the appraisal in accordance with Defective Conditions to determine if the Property is eligible for an FHA-insured Mortgage. If defective conditions exist and correction is not feasible, the Mortgagee must reject the Property”.
Defective conditions aren’t an instant barrier to a home loan. Many issues can be fixed. When the FHA fee appraiser notes problems, their corrections they are required as a condition of loan approval unless otherwise stated on the appraisal report.
What about borrowers want to purchase a fixer-upper home with an FHA rehab loan (also known as an FHA 203(k) or 203(h)? The property can’t meet minimum standards at the time of purchase, but when applying for a rehab loan this is accounted for. “If the Mortgage is to be insured under the 203(k) program, the Mortgagee must confirm that the Property will comply with the following eligibility criteria upon completion of repairs and improvements.”
Budget and save for both an initial appraisal fee and a follow-up inspection if needed. The follow-up, also known as a compliance inspection, is usually required for certain corrections required as a condition of loan approval. FHA appraisals are no substitute for a home inspection and borrowers should expect to get a full report on the home’s condition from a home inspector, not an FHA appraiser.
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