What Will Fail an FHA Appraisal?

An FHA appraisal is a crucial step in securing a loan insured by the Federal Housing Administration. Its purpose is to ensure the property meets minimum health, safety, and structural soundness standards. This protects both the borrower and lender by verifying the home is habitable and suitable collateral. Unlike a standard home inspection, an FHA appraisal focuses specifically on these minimum property requirements.

Key FHA Appraisal Standards

FHA appraisals are guided by Minimum Property Standards (MPS) and Minimum Property Requirements (MPR), detailed in HUD Handbook 4000.1. These standards ensure that homes financed with FHA loans are safe, structurally sound, and secure. The appraiser’s role is to identify any conditions that violate these standards, which encompass the safety, security, soundness, sanitation, and functionality of the property.

Structural and Exterior Issues

Significant structural and exterior problems commonly lead to an FHA appraisal failure. Major foundation cracks are serious concerns that require expert evaluation. Active roof leaks or severely deteriorated roofing materials are common red flags. The roof must be free of leaks.

Deterioration of exterior siding, trim, or paint, particularly peeling or chipping paint on homes built before 1978, is flagged due to potential lead-based paint hazards. Major drainage issues around the foundation, such as land sloping towards the house instead of away, can cause water intrusion and structural damage. Damaged or missing chimneys will also be noted by the appraiser. Any compromised structural elements visible from the exterior, like bowing walls or sagging floors, can indicate potential failures.

Interior and Mechanical System Deficiencies

Interior conditions and issues with mechanical systems are frequently causes for FHA appraisal failures, as they relate directly to the functionality and basic livability of the home. Non-functional or unsafe heating, ventilation, and air conditioning (HVAC) systems are significant concerns, as a permanently installed and functioning heating system is generally required. All utilities, including water, electricity, and heat, must be turned on and operational during the appraisal.

Inadequate or non-working plumbing fixtures, such as active leaks, a lack of hot water, or missing essential fixtures like sinks or toilets, will cause an appraisal to fail. The electrical system must also be in good working order, meaning exposed wiring, insufficient outlets for modern living, or ungrounded outlets in wet areas pose hazards. All outlets and light switches need covers, and exterior outlets should be ground fault circuit interrupter (GFCI) protected.

Significant damage to interior walls, ceilings, or floors, including large holes, water damage, or signs of structural compromise, will be flagged. Non-operable or severely damaged windows and doors that compromise security or weatherproofing also contribute to appraisal failure. For instance, broken windows allow moisture penetration and present a safety hazard.

Health and Safety Hazards

Specific conditions posing direct risks to the health and safety of occupants are immediate grounds for FHA appraisal failure. The presence of peeling, chipping, or deteriorated lead-based paint in homes built before 1978 is a major concern due to potential lead poisoning. Such paint must be scraped and repainted according to EPA requirements, as it is considered a health and safety issue, not merely cosmetic.

Active mold growth, especially if visible or extensive, is another significant hazard that appraisers will note, often requiring remediation before loan approval. Pest infestations, particularly termites or other wood-destroying organisms, can compromise structural integrity and sanitation. Evidence of active infestation will typically require a professional pest inspection and treatment.

Lack of safe egress from sleeping areas, such as security bars over windows without quick interior releases, is a safety violation. Missing or unsafe handrails on stairs and exposed electrical wires are also common issues that must be corrected. Carbon monoxide hazards from unvented heaters or significant water contamination issues, like well water failing testing, also lead to appraisal failure.

Site and Property Access Concerns

Conditions related to the property’s site and access can also cause an FHA appraisal to fail. Inadequate drainage away from the foundation, which could cause structural damage or water intrusion, is a common issue that must be addressed. Contaminated soil or proximity to environmental hazards like excessive noise pollution from airports or major roadways, or living near landfills, can impact the property’s livability and value.

Properties located in flood zones without proper mitigation measures or required flood insurance may be ineligible for FHA financing. A lack of safe and all-weather access to the property, such as a shared driveway without a permanent access easement, poses a significant concern. An unpaved, excessively steep, or unmaintained driveway that is impassable in certain weather conditions can also lead to failure.

Significant property line encroachments or unresolvable title issues that affect marketability or use are also reasons for an FHA appraisal to fail. The appraiser will consider the surrounding neighborhood’s upkeep and any potential nuisances that could affect the home’s safety and livability.