Whether you are a first time homebuyer or refinancing a multi-unit property, there is a good chance that your lender might have suggested an FHA loan product for your financing. This is a government-insured loan that allows for greater loan-to-value and debt-to-income ratios, but it comes with a few more strings and FHA appraisal guidelines that must be abided by to complete.
In order to ensure the value of your subject property, the condition of the home, and the eligibility for the loan product an FHA appraisal must be completed in accordance to the FHA appraisal guidelines. You will be assigned an FHA case number that will attach that report to that property for your loan. This will help to streamline the government loan process.
Who completes an FHA appraisal?
Once you have completed your loan application and you have been assigned an FHA case number, your lender will discuss how they will go about placing an order for your appraisal.
Most lenders are going to use an Appraisal Management Company (AMC) to place the order. This is a network of appraisers that the company leverages to complete orders all over the country in accordance to the loan product that is being used. An FHA appraisal is going to require that the appraiser is licensed by the FHA as it is going to have extra requirements that a traditional Conventional loan is not going to require. Typically this is not something that you will even have to think about. If an FHA order is placed then the AMC is going to know that the appraiser must be licensed by FHA.
Your lender will discuss the appraisal cost for your loan type as not every loan requires the same format. Your base price may sit anywhere from $400-$600. However, if they need to add any additional reports such as a rent schedule then there will probably be an additional cost. Make sure you know what you are paying for and what is expected of the appraiser. They are paid each time they visit the property, so you will want to make it a priority to know what is being ordered.
What is the appraiser looking for?
When an appraiser decides to get licensed for various loan types, they are educated in what those particular loan types expect to find in a home. In this case, FHA appraisal guidelines will have to be acknowledged in order for an FHA loan to go be used on the subject property. Here are a few FHA appraisal guidelines to note as your appraiser will be using them to complete your report:
- Oil or Gas Wells Excessive Noise
- Heavy Traffic Area
- Within Airport Zone
- Gas Line Distance
- Hazardous Smoke or Odors
- Hazardous to Floods
- On-site Septic System Failure
- Proximity to hazardous landfills
- Leaks, ponds, stains, and odors
- Water and Sewage
- Proper water drainage
- Public Access to Water Supply
- Public Access to Sewer System
- Termite Infestation
- Floor Cracks, Leaks, Rodent Marks,or Peeling Paint
- Structure Damage: Cracks or Water
- Sealed and Ventilated Attic
- Accessible and Sealed Basement
- Roofing Damage Holes, Leaks, or Peeling
- Heating System: Irregular Smell or Smoke
- Central Air: Irregular Smell, Noise, or Smoke
- Electrical Wiring: Sparks, Smoke, or Visible Wires
- Functional Plumbing: Toilets, Faucets, and Showers
- Running Water: Hot Access, Good Pressure, and Leaks
Health and Safety
- Broken Windows, Stairs, or Doors
- Blocked Entrances and Exits
- Functional Garage Door
- Approved by FHA
- Meets Owner-Occupancy Standards
- Meets Complete Standards
What happens if there are issues with my appraisal?
From time to time, homes do not pass an FHA appraisal. This does not mean that you are dead in the water. It just means that there are items in the report that do not meet the FHA appraisal guidelines, and they need to be rectified.
Sometimes you will get a report back with a few minor issues. The appraiser might say something about the batteries being dead in the smoke detectors or your basement stairs needing a handrail. These are easy fixes. You might even find that the items are addressed between real estate agents, and you don’t even have to think anymore about it.
However, sometimes the report will have less than stellar news such as questions regarding the roof or foundation. These items will often require a licensed inspector to investigate the issue, write a report with their recommendations, and inform the parties if further action is required to be taken. At this point you will want to discuss your approach with your agent as they may have to go back to the negotiating table for you.
It is important to know that pretty much anything but a clean bill of health on the FHA appraisal report will require a second trip from your appraiser. This will have an additional trip fee attached to it. The FHA appraisal guidelines require that the appraiser checks to see that the items were addressed from the original report. Once the items are checked off, your lender will be able to move forward with your loan.
What happens if my seller won’t help with my repairs?
In any transaction, you can’t always expect to get everything that you want. Some sellers are sticklers when it comes to the purchase price that they have offered you. They might even point out that they are selling the home “as-is” in accordance to your purchase agreement. That doesn’t mean that you need to toss your hands in the air and consider your deal dead.
Consider the terms of your agreement. According to the FHA guideline, the buyer can ask for up to 6% of the purchase price to help cover their closing costs. Did you ask for this? They are also required to cover the buyer and seller’s real estate commissions along with any title fees that they may have. All of these numbers are chipping away at the final number that they get to walk away with.
Consider where your wiggle room is and understand what your threshold is financially. You don’t want to put a bunch of money into a home that you don’t own yet, but you also don’t want to lose out on a deal for batteries for the smoke detectors.
Talk to your real estate agent to see what they recommend. They, obviously, want to make sure that your home can pass the FHA appraisal guidelines, but they also want to make sure that they are doing what is best for their client. The seller should have some sort of an idea of what they were getting into when they agreed to your FHA agreement. It may be in their best interest to come to an agreement to get the repairs completed and get the deal closed.
Contact Us To Learn More FHA Appraisal Guidelines
We understand that there are so many pieces to consider when you are financing a home, and we appreciate that you are considering us. To find out more information about what Appraisal Management Companies that we work with, please reach out to us at 1-801-882-2292. Our expert staff will assist you with a free quote or advise you on the best next step. We look forward to serving you!