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Understanding FHA Appraisals

078Whether you’re purchasing a suburban home, a town home, manufactured home or condo, all properties must be appraised before the loan can be approved. The appraisal process and its requirements may vary depending on whether the home is under construction, is considered new construction, or is termed “existing construction”, but in all cases the property must meet minimum FHA standards also know as MPRs and MPS.

HUD 4000.1 explains the appraisal process: “The Appraiser must observe, analyze and report that the Property meets HUDs MPR and MPS. Minimum Property Requirements (MPR) refer to general requirements that all homes insured by FHA be safe, sound, and secure. Minimum Property Standards (MPS) refer to regulatory requirements relating to the safety, soundness and security of New Construction.”

“Every Property must be safe, sound, and secure so that the Mortgagee can determine eligibility. The Appraiser must note every instance where the Property is not safe, sound, and secure and does not comply with FHAs MPR and MPS.” This information is found on page 466 of HUD 4000.1.

If the appraiser finds things that don’t meet FHA minimum standards, labeled in HUD 4000.1 as “defective conditions”, FHA loan rules have specific requirements for what happens next. But how does the FHA specifically define a defective condition? “Defective Conditions refer to defective construction, evidence of continuing settlement, excessive dampness, leakage, decay, termites, environmental hazards or other conditions affecting the health and safety of occupants, collateral security or structural soundness of the dwelling.”

When such conditions are present, the appraiser makes recommendations to correct or “cure” them. But in some cases, further investigation may be needed:

“If the Appraiser cannot determine that a Property meets FHAs MPR or MPS, an inspection by a qualified individual or Entity may be required. Conditions that require an inspection by qualified individuals or Entities include:

-standing water against the foundation and/or excessively damp basements;
-hazardous materials on the site or within the improvements;
-faulty or defective mechanical systems (electrical, plumbing or heating/cooling);
-evidence of possible structural failure (e.g., settlement or bulging foundation wall, unsupported floor joists, cracked masonry walls or foundation);
-evidence of possible pest infestation;
-leaking or worn-out roofs; or
-any other condition that in the professional judgment of the Appraiser warrants inspection.

Appraisers may not recommend inspections only as a means of limiting liability. The reason or indication of a particular problem must be given when requiring an inspection.”

Borrowers should keep in mind that even though this process seems to be quite rigorous, an FHA appraisal is NOT a substitute for a home inspection, which a borrower should schedule and pay for regardless of the outcome of the FHA appraisal. “Passing” an FHA appraisal is not a stamp of a approval on a home or a guarantee that the property is defect-free. Only a home inspection will be sufficient for a borrower to be fully informed as to the nature of the property before purchase.

Do you work in residential real estate? You should know about the free tool offered by It is designed especially for real estate websites; a widget that displays FHA loan limits for the counties serviced by those sites. It is simple to spend a few seconds customizing the state, counties, and widget size for the tool; you can copy the code and paste it into your website with ease. Get yours today:

Joe Wallace - Staff Writer

By Joe Wallace

April 5, 2016

Joe Wallace has been specializing in military and personal finance topics since 1995. His work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and a member of the Air Force Public Affairs Alumni Association. He was Managing editor for for (8) years and is currently the Associate Editor for

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About was launched in 2010 by seasoned mortgage professionals wanting to educate homebuyers about the guidelines for FHA insured mortgage loans. Popular FHA topics include credit requirements, FHA loan limits, mortgage insurance premiums, closing costs and many more. The authors have written thousands of blogs specific to FHA mortgages and the site has substantially increased readership over the years and has become known for its “FHA News and Views”.

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