June 29, 2017
What is an FHA appraisal? Simply put, it’s a tool used by the lender to make sure the property to be purchased with an FHA mortgage meets minimum standards. It’s also used by the lender to establish the fair market value of the property for the purpose of setting the proper FHA loan amount.
FHA appraisals require a trained, impartial professional who is approved by the FHA. The lender and the appraiser do not “work together” in such a way that puts the appraiser in a compromising position by the lender. Instead, the appraiser is selected, she does her work and submits reports that detail the results of the appraisal.
How do FHA loan appraisals work? The appraiser must visually inspect the property, noting any defective conditions, building code issues or other items that may be apparent. The appraiser is not required to step out onto the roof, or perform detailed analysis of electrical systems, plumbing or other features.
Upon inspecting the property, the appraiser will note any conditions that may be “corrected” and make recommendations that would be required as a condition of FHA loan approval. In some cases, such as the presence of overhead high-voltage lines, gas pipeline easements or other conditions, the property may simply be deemed unsuitable for an FHA mortgage. But where things can be fixed, corrections are usually recommended.
The appraisal is meant to help protect the lender and help her establish the value of the home, but it also protects the borrower in one specific way. While the appraisal is NOT to be taken as a stamp of approval from the FHA or a promise that a home is defect-free, it does help insure that the “economic life” of the property over the lifetime of the loan will be such that the home can be resold at some point, should the borrower choose to do so.
In other words, if a home’s condition is such that over the course of a 30-year loan it might not be able to sell at a reasonable price, the property isn’t of much value to borrower as an investment, or to the lender as collateral for the loan. So the appraisal process would, generally speaking, help to prevent that scenario. But as the FHA itself says on its’ official site, the appraisal is NOT an inspection and should never be mistaken for one.
The appraisal is a valuable tool, but to be a truly informed borrower, a home inspection is necessary above and beyond the FHA appraisal.
Bruce Reichstein has spent over three decades as an experienced FHA and VA home loan mortgage banker and underwriter where he was responsible for funding “Billions” in government backed mortgage loans. He is the Managing Editor for FHANewsblog.com where he educates homeowners on the specific guidelines for obtaining FHA guaranteed home loans.
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