What is an FHA appraisal? It’s one of the most important parts of your home loan process when purchasing property with an FHA mortgage. The appraisal is a mandatory review of the property to help the lender establish the fair market value of the home while making sure the property meets minimum FHA requirements. But there’s more to the appraisal, as we’ll learn.
The FHA Appraisal Is A Tool For Your Loan Officer
Appraisals are not intended to help or inform the buyer as to the condition of the property. Some mistake the FHA appraisal for a home inspection, assuming that the FHA will “approve” or “reject” a home based on its’ condition.
The appraisal process is NOT a home inspection. Borrowers who choose not to pay for a home inspection can’t make an informed purchase; buying a home without an inspection is the same risky move as purchasing a vehicle without ever test-driving it.
The Appraisal Does Not Guarantee Quality
The appraiser’s job is, in part, to review the home and compare it to other “comparables” on the market in that area to see how the home measures up. That’s part of the process of establishing the fair market value of the property. The appraiser is not responsible for walking out onto the roof, closely examining plumbing or electrical systems, etc. The appraiser will make notes of any condition apparent during the routine walkthrough of the property.
In other words, the property you intend to buy with an FHA mortgage loan is not being “inspected” during the appraisal process in a top-to-bottom way that would reveal hidden flaws or problems. That is the job of the home inspector, who must be hired by the borrower independently of the appraisal process.
What Happens If The Appraiser Notices Problems
HUD 4000.1, the FHA loan handbook, has the following rules for the appraisal process:
“The Mortgagee must evaluate the appraisal in accordance with Defective Conditions to determine if the Property is eligible for an FHA-insured Mortgage. If defective conditions exist and correction is not feasible, the Mortgagee must reject the Property.”
Notice that HUD 4000.1 does provide options for correcting defective conditions, where feasible. From HUD 4000.1:
“When examination of a Property reveals noncompliance with the Property Acceptability Criteria, the Appraiser must note all repairs necessary to make the Property comply with HUD’s Property Acceptability Criteria, together with the estimated cost to cure. If the Appraiser cannot determine that a Property meets HUD’s MPR or MPS, the Mortgagee may obtain an inspection from a qualified Entity to make the determination. Mortgagees must use professional judgment in determining when inspections are necessary…”
What Happens If Corrections Are Needed
Depending on the severity of the issues that require correction, the appraiser may require a follow-up compliance inspection to insure that the corrections are made according to building code and FHA minimum standards. The borrower is responsible for the cost of such inspections which likely would be a condition of loan approval.