One question I get asked very often is “What does FHA look for on an appraisal?” Another way of asking it is, “Will the condition of this house meet FHA guidelines?”
When an FHA loan is being used, the appraiser has two objectives. The Department of Housing and Urban Development (HUD) requires the appraiser to determine the current market value, as with any appraisal. But they also require a property inspection to make sure the home meets HUD’s minimum standards for health and safety.
Note that the appraiser does not replace your home inspection. The appraiser has a duty to report to your lender the comparable value of the home your buying as well as the overall condition of the home. Only a home inspector will do a thorough analysis of the condition of every aspect of your home.
HUD is mainly concerned that everything in the house functions properly and there are no health and safety issues. The basic concept of meeting FHA minimum requirements is that everything must work as it was designed to work.
What does FHA look for with an appraisal?
At a minimum, the appraiser must complete the following steps:
- Visually inspect the subject property both inside and out.
- Take photos of the property to be included within the loan file. The photos must show the sides, front and rear of the home, as well as any value-adding improvements such as a pool or patio.
- Take a photo of each comparable sale transaction that is being used to support the appraisal.
- Obtain and provide a copy of a street map that shows the location of the property and each comparable sale, or “comp,” used during the valuation.
- Take photos that show the grade of the lot, if it’s a proposed construction.
Remember, these are the minimum steps that must be completed with an FHA appraisal. Here are a few things that we see get called out regularly on an FHA appraisal:
- Peeling paint (both inside and outside)
- Loose handrails
- Exposed wiring
- Exposed subfloor
- Non-working utilities
- Broken windows, screens, doors, etc.
- Poor drainage (or water that drains towards the foundation of the home)
- Water in the crawlspace
Peeling paint seems to be the worst offender in our area. The exterior paint has to be touched up if the finish is unprotected. If there are any areas, inside or out, where there are cracked, peeling, scaling or loose paint, this must be repaired before closing by carefully washing, sanding and scraping away the loose paint while making sure to catch all the paint chips with a drop cloth or something similar.
Basically, the house needs to be safe, sound and secure.