An FHA appraisal is an important step when you buy a home with an FHA loan. It confirms two things: that the home is worth the amount you plan to pay and that it meets the Federal Housing Administration’s basic property standards.
That may sound intimidating, especially if this is your first time buying a home. But an FHA appraisal is not designed to make homeownership harder. Its purpose is to help identify visible concerns that could affect your safety or the home’s value.
Let’s walk through the FHA appraisal requirements, what the appraiser looks for and what you can do if an issue comes up.
What is an FHA appraisal?
An FHA appraisal is an independent evaluation of the home you want to buy with an FHA loan.
First, the appraiser estimates the property’s market value. The appraiser considers the home’s size, features, condition, location and recent sales of comparable homes in the area.
Second, the appraiser looks for visible conditions that may not meet guidelines from the U.S. Department of Housing and Urban Development, or HUD. These guidelines focus on whether the property is safe, secure and structurally sound.
Your lender uses the completed appraisal to determine whether the property is eligible for FHA financing and whether the home supports the agreed-upon purchase price.
FHA Home Appraisal vs. Home Inspection
An FHA appraisal and a home inspection are not the same thing.
The appraisal is required for all FHA purchase loans. It determines the home’s estimated value and checks for readily observable concerns related to FHA minimum property standards. FHA appraisals commonly cost about $500 to $800, although the price can be higher depending on the home’s size, location and complexity. Your lender orders the appraisal, but you typically pay the fee.
A home inspection is usually optional, but it is strongly recommended. The inspector takes a more detailed look at the home’s condition and may uncover problems that an appraiser would not be expected to find. A general home inspection often costs about $300 to $500, with additional charges possible for services such as radon, sewer, mold or pest inspections.
Think of the appraisal as a basic value and property-eligibility review. The home inspection gives you a more complete understanding of the home you may be buying.
FHA Appraisal Guidelines
The purpose of FHA appraisals is to help confirm that the home is safe, structurally sound and suitable to live in. These FHA appraisal guidelines are set by HUD.
During the appraisal, an FHA-approved appraiser estimates the home’s market value and looks for visible conditions that could affect its safety, security or soundness. The appraiser is not conducting a full home inspection, but they may require repairs or further evaluation when they notice a concern.
FHA Appraisal Checklist
The exact FHA loan appraisal requirements depend on the property type, but the appraiser will generally review:
The roof, foundation and overall structure
Heating, electrical and plumbing systems
Water supply and sewage disposal
Safe access to the home
Working kitchen and bathroom facilities
Signs of leaks, water damage or poor drainage
Peeling paint in homes built before 1978
Visible health, safety or environmental hazards
The condition of stairs, railings, windows and doors
Garages, sheds and other structures included with the property
A home does not need to be new or free of cosmetic wear to meet FHA appraisal guidelines. The appraiser is mainly focused on issues that could affect your safety, the home’s livability or its long-term value.
Common FHA Appraisal Red Flags
Some concerns are more likely than others to result in required repairs or additional evaluation.
Peeling paint in an older home
Peeling, flaking or chipping paint can be a concern in homes built before 1978 because of the potential for lead-based paint. The damaged surface may need to be properly corrected before closing.
Roof leaks or serious roof damage
A few worn shingles may not stop an FHA loan. Active leaks, missing roofing materials or damage that allows moisture into the home are more likely to require attention.
Unsafe electrical conditions
Exposed wiring, damaged electrical components or other visible hazards may need to be repaired by a qualified professional.
A heating system that does not work
The home needs a permanently installed heating system that can maintain a safe and comfortable temperature for the area, and keep water pipes from freezing.
Significant water or foundation problems
Standing water, ongoing leaks, major foundation cracks or evidence of structural movement may require repairs or a professional inspection.
Missing safety features
The appraiser may call for a handrail, guardrail or another safety improvement when the existing condition creates an observable hazard.
Problems with water or sewage systems
A well, septic system or other private utility may require additional testing or evaluation when there are signs of a problem or when local requirements call for it.
Pest damage
An FHA appraisal does not automatically include a full pest inspection. However, visible evidence of termites or other wood-destroying organisms may lead to further evaluation and repairs.
What happens when an FHA appraisal identifies a problem?
An appraisal does not necessarily “fail.” Instead, one of two common issues may need to be resolved.
1. The home needs repairs
The appraisal may be made subject to specific repairs or further evaluation.
Depending on the situation:
The seller may agree to complete the repairs.
You and the seller may renegotiate the agreement.
An appropriate professional may need to evaluate the concern.
A repair escrow may be possible in limited circumstances and with lender approval.
A renovation loan, such as an FHA 203(k) loan, may be worth exploring for an eligible property.
You may decide not to continue with the purchase, depending on your contract.
Do not arrange or pay for work on a home you do not own without first speaking with your lender, real estate agent and an appropriate legal professional. Your contract and lender’s rules will affect your options.
After required repairs are completed, the appraiser may return to the property and confirm the work. An additional fee may apply.
2. The appraised value is lower than the purchase price
FHA financing is generally based on the lower of the purchase price or the appraised value.
When the value comes in low, you may be able to:
Ask the seller to lower the price.
Pay some or all of the difference with your own funds, if your finances and lender allow it.
Negotiate another solution with the seller.
Ask your lender whether a reconsideration of value is appropriate when there is credible information the appraiser may not have considered.
Cancel the transaction when your contract gives you that right.
The FHA amendatory clause generally allows you to move forward without being required to complete the purchase when the property does not appraise for at least the amount stated in the clause. Your rights to recover earnest money still depend on the clause, the purchase contract and applicable law, so review the documents with your real estate agent or attorney.
Can you challenge a low FHA appraisal?
You cannot simply order another appraisal because you disagree with the value. FHA generally limits when a second appraisal may be used.
However, you can ask your lender about a reconsideration of value. A reconsideration may be appropriate when you or your real estate agent can provide credible information such as:
Relevant comparable sales that were not considered
Correct details about the home
Information about completed improvements
Evidence of a material error in the report
The lender reviews the request and determines whether it should be sent to the appraiser. A reconsideration does not guarantee that the value will change.
How long is an FHA appraisal good for?
An FHA appraisal is typically valid for 180 days from the date of completion. However, if there are delays in closing, such as issues with repairs or other complications, this period can be extended for an additional 180 days.
It's also important to note that once a lender files an order for an appraisal, the appraiser typically inspects the property within a few days, depending on the appraiser’s schedule and availability.
If too much time passes or the property’s condition changes, a new appraisal may be required.
FHA Appraisal FAQs
You Don’t Have to Figure It Out Alone
An FHA appraisal can feel like one more hurdle between you and a home of your own. In most cases, it is simply a checkpoint that helps confirm the home’s value and identify visible concerns before you take the next step.
When questions come up, ask them. A helpful loan team should explain what the appraisal means, which issues need attention and what options may keep your homebuying journey moving forward.
Dan Bartelt has over 16 years of mortgage industry experience. He’s held roles as a loan officer and processor and has spent the past 8 years as an underwriter. Dan views underwriting as solving a puzzle—piecing together details to create a compelling loan story.