June 2, 2020

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FHA Loan Rules For Appraisals: Appliances, Mechanical Systems In The Home

FHA Loan Rules For Appraisals: Appliances, Mechanical Systems In The Home

HUD 4000.1, the FHA Single-Family Loan Handbook, has a detailed section about FHA loan appraisal requirements.

First-time home buyers may not realize that certain details of the home must meet FHA requirements such as the condition of appliances and the efficiency of the mechanical systems in the home such as central air conditioning or hot water heaters.

HUD 4000.1 lists FHA requirements for appliances in the appraisal, stating that the FHA appraiser is required to review the home’s stove, fridge, washing machine, etc. if those appliances are being left in the home for the new owner.

“Appliances that are to remain and that contribute to the market value opinion must be operational. ”

This section is discussing appraisals for existing construction homes, but the intent is clear; the condition of the appliances in the home can affect the appraisal.

For mechanical systems in the home such as hot water heaters, air conditioning, fuse box or circuit breaker box, etc. there are FHA guidelines covering what the appraiser should do when reviewing them.

“The Appraiser must notify the Mortgagee if mechanical systems do not appear:

  •  to have reasonable future utility, durability, and economy;
  •  to be safe to operate;
  •  to be protected from destructive elements; or
  •  to have adequate capacity”.

HUD 4000.1 tells the lender that the appraiser is required to “observe the physical condition of the plumbing, heating and electrical systems. The Appraiser must operate the applicable systems and observe their performance. “

What happens if there are problems or defects in this area? HUD 4000.1 tells the lender that, for example, the heating system must meet the following requirements, and corrections must be ordered if possible in order to obtain loan approval:

“The Appraiser must notify the Mortgagee of the deficiency of MPR or MPS if the permanently installed heating system does not:

  • automatically heat the living areas of the house to a minimum of 50 degrees Fahrenheit in all GLAs, as well as in non-GLAs containing building or system components subject to failure or damage due to freezing;
  • provide healthful and comfortable heat or is not safe to operate;
  • rely upon a fuel source that is readily obtainable within the subject’s geographic area;
  • have market acceptance within the subject’s marketplace; and
  • operate without human intervention for extended periods of time.”

FHA loan appraisal rules say that central air conditioning “is not required”, so that is not an issue–but in cases where central heat and air ARE installed, they are required to be in working order.

“If the air conditioning system is not operational, the Appraiser must indicate the level of deferred maintenance, analyze and report the effect on marketability, and include the cost to cure.”

It is important to remember that these are only the FHA requirements, and there may be state/local building code rules which also must be satisfied. The FHA rules do not override local regulations.

Joe Wallace - Staff Writer

By Joe Wallace

November 7, 2019

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 www.valoans.com for (8) years and is currently the Associate Editor for FHANewsblog.com.

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