September 21, 2017

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FHA Appraisal Questions: Peeling Paint, Electrical Outlets

We frequently get FHA appraisal questions in our comments sections. Here’s one of the latest:

“Im trying to purchase a home and I have an FHA loan. The only thing Im concerned about is the peeling paint outside and that some of the outlets arent grounded. How would this affect my FHA loan approval?”

FHA appraisal rules are found in HUD 4000.1. The instructions to the FHA appraiser don’t cover all possible contingencies for defective conditions, required corrections, etc. but do have something to say about peeling paint. The age of the paint may determine the extent of the corrections/repairs in this area. According to HUD 4000.1, for homes or improvements on or before 1978:

“The Appraiser must note the condition and location of all defective paint and require repair in compliance with 24 CFR 200.810(c) and any applicable EPA requirements. The Appraiser must observe all interior and exterior surfaces, including common areas, stairs, deck, porch, railings, windows and doors, for defective paint (cracking, scaling, chipping, peeling, or loose). Exterior surfaces include those surfaces on fences, detached garages, storage sheds, and other outbuildings and appurtenant Structures.”

Lead-based paint issues are not considered cosmetic problems. In general homes or improvements to those homes that date on or before 1978 are assumed to contain lead paint and must be dealt with accordingly. Such conditions are not necessarily a barrier to loan approval. The appraiser may recommend corrections which must be accomplished as per the appraiser’s write-up as a condition of loan approval.

The electrical system issue is one that depends partly on state/local building code and partly on FHA guidance. That guidance to the appraiser is as follows:

“The Appraiser must observe the physical condition of the plumbing, heating and electrical systems. The Appraiser must operate the applicable systems and observe their performance. If the systems appear to be damaged or do not appear to function properly, the Appraiser must condition the appraisal for repair or further inspection.”

Conditions that are not acceptable under state/local building code will not be acceptable to the appraiser. FHA loan rules do not include comprehensive lists of building code requirements so the borrower would need to consult with the local authority, but to answer the reader question if corrections in this area are required by the appraiser those fixes would not interfere with loan approval if they are done to the specifications of the appraisal and state/local code.

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