FHA loan appraisal rules found in HUD 4000.1 give the lender specific instructions on how to proceed with an FHA loan during the appraisal process. HUD 4000.1 has some very specific language that can help a borrower understand key issues surrounding FHA mortgage loans, including why an FHA appraisal should not be mistaken for a “home inspection” nor used in place of one.
The FHA appraisal is carried out to make sure the home meets minimum standards, and where a home does not, require minimum repairs or corrections to the property to bring it up to minimum standards. According to HUD 4000.1:
“As the on-site representative for the Mortgagee, the Appraiser provides preliminary verification that a Property meets the Property Acceptability Criteria, which includes HUDs Minimum Property Requirements (MPR) and Minimum Property Standards (MPS). Minimum Property Requirements refer to general requirements that all homes insured by FHA be safe, sound, and secure.”
Furthermore, “The Mortgagee must review the appraisal and ensure that it is complete, accurate, and provides a credible analysis of the marketability and value of the Property.”
What happens if the appraiser requires repairs or corrections? ”
“When the appraisal report or inspection from a qualified Entity indicates that repairs are required to make the Property meet HUDs MPR or MPS, the Mortgagee must comply with Repair Requirements. If repairs for Existing Construction cannot be completed prior to closing, the Mortgagee may establish an escrow account in accordance with Repair Completion Escrow Requirements.”
Note the language in all the above–FHA minimum property requirements are only that–minimums. A borrower should get a home inspection as well as the appraisal to insure the property does not have any issues that may concern the purchaser later.
A home inspection is a more involved look at the property, and may reveal issues not directly observable by the appraiser. The FHA appraisal should never be taken as a guarantee that the home you want to buy is free from problems, nor can the FHA do anything on a borrower’s behalf with purchases that were made without a home inspection, and later turned up with defective conditions.
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