What Does an FHA Appraiser Look For?

An FHA appraisal is a specialized assessment required for homes purchased with a loan insured by the Federal Housing Administration. This process differs from a conventional appraisal by focusing not only on the property’s market value but also on its adherence to specific minimum property standards. The FHA appraisal serves to protect both the borrower, by ensuring a habitable home, and the lender, by confirming the property adequately secures the loan. It is a mandatory step in securing FHA financing, evaluating the property’s condition to meet agency guidelines for safety and security.

Core FHA Appraisal Requirements

An FHA appraisal is guided by the principles of Minimum Property Requirements (MPRs) and Minimum Property Standards (MPS), established by the U.S. Department of Housing and Urban Development (HUD). These standards ensure that properties financed with FHA loans are safe, structurally sound, and secure for habitation. The appraiser’s primary objective is to identify any conditions that could pose health or safety risks to occupants, or that might compromise the structural integrity of the home.

The FHA requires that a property must be safe, sound, and secure to be eligible for financing. “Safe” means the home should not present health or injury risks. “Sound” refers to the home’s structural integrity, ensuring its foundation, walls, and roof are stable and free from significant defects. “Secure” signifies that the property provides a protected environment.

Beyond evaluating these FHA-specific requirements, the appraiser also determines the market value of the home, similar to a conventional appraisal. This involves researching the local residential real estate market and analyzing the sale prices of comparable properties. The appraiser typically cites at least three recently closed comparable sales to establish a reliable market value. This dual focus ensures that the loan amount does not exceed the property’s worth while confirming it meets livability standards.

Any issues identified during the appraisal that do not meet FHA standards are noted as deficiencies, potentially requiring repairs before the loan can be approved. These requirements protect the FHA from financial losses and ensure that borrowers are investing in properties that are move-in ready and will retain their value. While the FHA appraisal covers some aspects of a home’s condition, it is not a substitute for a comprehensive home inspection.

Specific Property Components Examined

FHA appraisers examine various physical elements of a property to ensure compliance with Minimum Property Requirements and Minimum Property Standards.

Exterior

The roof must be in good condition, free of leaks, missing shingles, or major wear. The foundation is closely examined for significant cracks, shifting, or signs of settlement. Proper drainage and grading are also assessed to prevent water from pooling around the foundation.

Structural integrity of walls and framing is evaluated to ensure stability. Site conditions are considered, including safe access to the property and the absence of environmental hazards. Utilities, including gas, electricity, potable water, and sewage systems, must be accessible and functional.

Interior

The appraiser checks the plumbing system for adequate water pressure, flow, and proper waste removal, along with the absence of leaks. Electrical systems are assessed for safety and capacity, ensuring no exposed wiring or functional outlets. The heating system must be permanently installed, adequate to heat the entire home, and operational.

Water heaters are examined to ensure they have a temperature and pressure-relief valve. For homes built before 1978, the presence of peeling, chipping, or flaking lead-based paint must be addressed. Appraisers also confirm adequate access to bedrooms and bathrooms and assess overall habitability, looking for issues like missing handrails on stairs or broken windows. Health and safety hazards, such as active water leaks, pest infestations, or mold, are significant concerns that must be remediated.

Understanding the Appraisal Process

The FHA appraisal process typically begins after the buyer and seller have a signed purchase contract, with the mortgage lender ordering the appraisal from an FHA-approved appraiser. This ensures an impartial assessment of the property’s value and condition. The appraiser then conducts a physical visit to the property, which involves a thorough visual inspection of both the interior and exterior.

During the site visit, the appraiser assesses for compliance with HUD’s Minimum Property Requirements and Minimum Property Standards, focusing on structural integrity, safety, and health concerns. Following the physical inspection, the appraiser conducts market research, analyzing comparable sales in the area to determine the home’s fair market value. The appraiser compiles these findings into a detailed report, which includes the appraised value, property condition, and any required repairs to meet FHA standards.

The completed appraisal report is submitted to the lender, who then reviews the findings. The property may meet all FHA requirements and be approved, or it may require specific repairs before the loan can be finalized. These required repairs, often called “conditions,” must be completed and re-inspected to confirm compliance. If issues are too extensive or costly to remedy, the property may be deemed ineligible for FHA financing. The FHA appraisal is typically valid for 180 days from the date of issuance.