The appraisal portion of the FHA home loan process is often misunderstood. What exactly IS an FHA appraisal and what is it designed to do? The answers are very important, especially for first-time home buyers.
The FHA appraisal process is designed to do two basic things–one is to establish the fair market value of the home you want to purchase with an FHA loan. This is accomplished when an FHA appraiser–who is NOT considered a home INSPECTOR–reviews the home to make sure it meets minimum standards for safety and habitability. The review of the home is also designed so that the appraiser can compare the property to others like it on the market.
The appraiser does the review, writes an appraisal report, and submits it to the lender. At no time does the FHA appraiser “approve” the home with an FHA seal of approval or guarantee that the property is free of defects. The appraiser simply verifies that yes, the home meets FHA minimum requirements and state/local building code insofar as the appraiser can tell. Or, the appraiser will note defects, problems, or hazards on the report.
In some cases those issues can be fixed. A roof can be repaired, a leak might be able to be fixed. In such cases, the appraiser would require the corrections as a condition of loan approval. A second visit known as a compliance inspection would be required to insure those things are taken care of. In each case–the appraisal and any required compliance inspection–the borrower is responsible for paying for the services rendered no matter what the outcome of each visit might be.
In other cases, the problems cannot be repaired or corrected and the home is deemed unsuitable for an FHA loan. Such conditions include, but are not limited to, location within certain high pressure gas pipeline easements, special flood zones, high noise areas, etc.
No matter what the outcome of the FHA appraisal process, what the borrower does NOT have at the end of the day is a promise or guarantee that the home is free from defects. All home buyers should pay for a home inspection (which is NOT part of the FHA appraisal process and must be paid for separately) to determine the exact condition of the home.
Make no mistake, the appraisal process is important, but that process alone is not enough to determine the condition of the home you want to buy.
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