FHA Appraisal Guidelines: A Beginner’s Guide
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During the appraisal, a professional will assess the home’s condition and determine its fair market value.
An FHA appraisal can require repairs before the loan is approved. That’s more strict than a conventional loan.
An appraisal isn't a home inspection. It’s still a good idea to get a home inspection for your own benefit.
During the appraisal, a professional will assess the home’s condition and determine its fair market value.
An FHA appraisal can require repairs before the loan is approved. That’s more strict than a conventional loan.
An appraisal isn't a home inspection. It’s still a good idea to get a home inspection for your own benefit.
FHA loans, backed by the Federal Housing Administration, can be a great fit for borrowers with limited savings or lower credit scores. In general, FHA loan requirements are more flexible than those of conventional loans. However, one requirement is a little more strict: the FHA appraisal.
Don’t stress, though. While the FHA appraisal has a tough rep, it’s only to make sure you’re buying a safe and solid house that’ll be a good investment over time. Here’s what to expect with an FHA appraisal.
» MORE: How to get an FHA loan
What is an FHA appraisal?
An FHA appraisal is a professional assessment of a home to make sure it's eligible for financing through an FHA loan. Like a home appraisal for other types of mortgages, an FHA appraisal includes a professional opinion of the property’s value.
During an FHA appraisal, the property is held to requirements set by the U.S. Department of Housing and Urban Development, or HUD. To be eligible for FHA financing, a home must meet HUD’s three necessary requirements, or “minimum property standards.” They are:
Safety. The property has no major issues that would affect occupants’ health.
Soundness. The home is structurally sound.
Security. The home is secure, with all windows, doors, locks and lighting in good working order.
How do I pass an FHA appraisal?
After their walk-through, the appraiser will recommend what needs to be done to make the home “safe, sound and secure.” Before you can close on an FHA loan, you’ll have to make any repairs flagged in the appraisal — whether they’re small (like peeling paint) or large (like a crack in the foundation).
That’s different from a conventional mortgage appraisal, which simply reports the fair market value of the home.
Given the appraisal requirement, it can be harder — but not impossible — to win a bidding war with an FHA loan. An experienced buyer’s agent can suggest ways to make your offer more competitive. It’s not always about price: Flexibility on closing and move-in dates can be a big selling point, even in a hot market.
When is an FHA appraisal required?
Most types of FHA loans require an FHA appraisal during the mortgage underwriting process. Specifically, that includes:
Purchase loans, or the basic home mortgage loan known as the FHA 203(b).
Renovation loans, or the FHA 203(k) rehabilitation mortgage.
Reverse mortgages, or the home equity conversion mortgage (HECM) for seniors.
Most refinance loans, including a rate and term refinance or cash-out refinance.
However, an FHA appraisal isn't required for:
FHA streamline refinance loans. (Like its name suggests, a streamline refinance requires less up-front paperwork and documentation.)
FHA Title 1 loans, a fixed-rate loan used for small to moderate home improvement projects.
The federal government insures FHA loans, but it doesn’t lend the money directly. FHA loans are issued by private lenders, including banks, credit unions and nonbanks (a financial institution that lends money but doesn’t offer checking or savings accounts).
How does an FHA appraisal work?
Once you have an offer accepted on a house, your mortgage lender will order the FHA appraisal and choose the appraiser. The appraisal is for the lender’s benefit: They want to make sure they’re not lending more money than the house is actually worth.
However, the appraiser is a neutral party who doesn’t work for the lender. The FHA appraiser has to be certified with the state and enrolled as an approved provider with HUD. As a certified professional, they stay up to date on the FHA’s policies and procedures.
Here’s what happens during an FHA appraisal:
The appraiser will conduct a walk-through to assess the condition of the home, including its major systems, and the property.
The appraiser will select a few comparables (called “comps”) — or, homes of a similar style, age and size that have recently sold in the area. Comps provide a reference point for the home’s fair market value.
Based on the walk-through and comps, the appraiser issues a report providing their opinion of the home’s value to the FHA. The report will also include a list of repairs required for the home to receive FHA financing.
You’ll get the appraisal report back in about a week, so you’ll know if you need to address any issues.
Who pays for an FHA appraisal?
The buyer usually pays for the FHA appraisal. It’s technically part of closing costs, but you’ll pay the bill earlier in the process, when the appraisal is requested.
How much does an FHA appraisal cost?
Expect to spend a couple hundred dollars on an FHA appraisal. According to Angi, a website that provides cost estimates for home services, an FHA appraisal typically costs $400-$700. However, the cost can be affected by details including:
The size of the home (square footage).
Property location and size of land.
The number of units, in the case of a multifamily or mixed-use property.
Any unique or unusual features.
FHA appraisal guidelines: A checklist
You can find the complete list of FHA appraisal guidelines in HUD’s single-family policy handbook. Here are some of the common issues and red flags that an FHA appraiser will look for:
Location and environment
The property shouldn’t have any environmental hazards, odors or excessive noise.
Water should drain away from the foundation. All gutters and downspouts should function properly.
Any encroachments (such as a neighboring garage or fence that crosses the property line) will be noted — although this isn’t always a dealbreaker.
Foundation, walls and windows
The foundation must be structurally sound.
The basement must be free of water damage or dampness.
No active termite infestation.
No broken windows, doors or steps.
Doors must be accessible (no blocked doors), and all steps must have a handrail.
Paint cannot be chipping, peeling, flaking or otherwise defective, due to health hazards from lead-based paint.
Utilities, mechanical systems and appliances
Utilities, including water, sewage, heat and electricity, must be turned on during appraisal.
All appliances must function properly.
The property should have a permanently installed, functioning heating system. Air conditioning isn't required, but if it is installed, it must work properly.
The plumbing system should be in good working order. Water pressure must be adequate, with hot and cold water available.
The electrical system should be in good working order. Electrical outlets and switches must function properly.
Roof and attic
Roofing cannot leak and must have at least two years of life remaining.
Attics and crawl spaces must have vents and be free from damage, such as mold or vermin.
FHA appraisal vs. home inspection: What’s the difference?
An FHA appraisal is conducted for the lender’s benefit to determine a home’s value. Its purpose is to make sure the home is worth the money the lender is letting you borrow to purchase it.
A home inspection, on the other hand, benefits the buyer. This in-depth review of the home evaluates its condition and maintenance needs, including flagging small issues that could become worse over time. A home inspection doesn’t consider comps or assign a value to your home.
What to expect when the appraisal is complete
An FHA appraisal is good for 180 days from the effective date listed on your report. Hopefully, you won’t need that long to close. On average, it takes 43 days to close on an FHA loan, according to mortgage data provider ICE Mortgage Technology.
FHA appraisal repairs: Who is responsible?
If the appraisal shows necessary repairs, these items will need to be fixed if you want to buy the house with an FHA loan. You can either:
Pay for them yourself.
Negotiate with the home seller to help cover the cost.
To skirt the issue of paying for repairs, you could try to buy the house with a conventional mortgage instead. It would add time, since you would start a new mortgage application from scratch. You’d also need a good credit score. With shaky credit, you might not qualify for a conventional loan, or you might pay higher fees and interest.
Your buyer’s agent can advise you on how to negotiate the cost of repairs. For example, you could ask for the sellers’ assistance to keep a little more cash in your pocket at closing. The seller could always say “no,” though. Then, you’d be on the hook to pay for the repairs on your own or walk away from the deal.
What happens if the FHA appraisal comes in low?
If your house appraises for less than your offer price, that’s known as an appraisal gap. You can challenge a low appraisal if you strongly believe the appraiser made a mistake. If you think you were discriminated against, you can file a fair housing complaint on the HUD.gov website.
