FHA loans, backed by the Federal Housing Administration, are popular for making homeownership more accessible through lower down payment requirements and flexible credit standards. However, these loans come with specific property guidelines to ensure homes meet safety and livability standards. One essential step in the process is the FHA appraisal, which is required for all FHA loans—except, in most cases, streamline refinances.
In a nutshell
FHA appraisals:
Ensure the home meets minimum safety standards.
Provide a fair market value for the property.
Typically cost between $300 to $600, depending on the location and property size.
Are relatively quick–often completed within a week of scheduling.
Valid for 180 days, though they can be extended under certain conditions.
Differ from home inspections which are also recommended.
An FHA appraisal serves two purposes: to determine the home's market value and to ensure the property meets the FHA's strict safety, soundness, and security criteria. It’s important to note that an appraisal is different from a home inspection. While the appraisal focuses on the property's value and compliance with FHA standards, an inspection provides a more detailed assessment of the home’s overall condition.
Compared to conventional loans, FHA appraisals are generally more rigorous. This is because the FHA wants to protect buyers and ensure the home is a safe and sound investment. For potential homeowners, understanding this step is key to navigating the FHA loan process confidently.
FHA Appraisal Guidelines
FHA appraisal guidelines or FHA minimum property standards are established by the Department of Housing and Urban Development (HUD), which also plays a critical role in the appraisal process. HUD approves the appraisers who conduct the FHA appraisals and oversees the selection process, ensuring that only qualified, impartial professionals are involved.
FHA minimum property standards ensure that the home is safe, sound, and secure. Key areas of focus include structural integrity, the functionality of major systems like plumbing, heating, and electrical, and the absence of health or safety hazards such as lead-based paint, water damage, or inadequate access. Additionally, the property must meet minimum requirements for habitability, including functioning utilities and secure access. These strict criteria help protect both buyers and the lender by ensuring the home is a sound investment.
FHA Appraisal Checklist
Understanding what FHA appraisers look for can help you prepare your home for appraisal and ensure it meets the minimum safety and livability standards set by FHA.
Here are some of the most important items that FHA appraisers look for:
Proper functioning of the heating system.
Adequate and safe electrical systems.
Fully operational plumbing systems.
A roof with at least two years of remaining life expectancy.
No signs of significant water damage or leaks.
Presence of handrails on stairs where required.
Safe and functional access to the home, including stairs and walkways.
Absence of lead-based paint hazards in homes built before 1978.
Windows and doors that are intact and operable.
A solid and stable foundation without major cracks or shifting.
No visible mold or mildew issues.
A safe and functional water supply.
Proper grading to ensure water drains away from the foundation.
No pest infestations or damage caused by termites.
Absence of any hazardous materials or environmental issues.
Functioning smoke detectors in appropriate locations.
The property must not have encroachments or zoning violations.
Livable kitchen and bathroom facilities.
Safe and secure outbuildings, if present.
Clear and unobstructed access to utilities.
These guidelines ensure that the property meets FHA standards and provides a safe, functional living environment for the buyer while protecting the lender’s investment.
FHA Appraisal Cost
The cost of an FHA appraisal typically ranges between $300 and $600, though this amount will vary based on the home’s location, size, and complexity. In some regions, appraisals may be higher due to increased demand or limited availability of qualified appraisers.
It’s important to note that while lenders are responsible for booking and paying the appraiser upfront, the buyer must reimburse this cost as part of their closing fees. Some lenders may allow this expense to be rolled into the loan amount, but this isn’t guaranteed.
However, the FHA appraisal is an allowable seller concession, meaning you could negotiate with the seller to cover the fee during closing.
FHA Appraisal Timeline
The FHA appraisal typically occurs early in the loan process, once the buyer has made an offer and the seller has accepted.
FHA Appraisal Red Flags
There are certain FHA appraisal red flags that could delay or even prevent a loan from closing.
A red flag is going to be any major defect or safety concern, such as a leaky roof, mold, or structural damage.
Remember, FHA appraisers are looking for obvious hazards and structural issues that could impact the home's habitability or long-term value.
Common FHA red flags include:
- Peeling paint on homes built before 1978: This could
indicate the presence of lead-based paint, which must be addressed before the
property can pass the FHA appraisal.
- Structural damage: Issues such as cracks in the foundation, sagging floors, or damaged support beams could jeopardize the home’s safety and stability.
- Roof Problems: A roof with significant damage, leaks, or nearing the end of its lifespan may require repair or roof replacement.
- Heating System Defects: A home without a functioning heating system won’t meet FHA standards, as it must be livable year-round.
- Handrails and Safety Features: Missing handrails on stairs or other safety-related will need to be addressed.
- Non-compliant Outbuildings: If sheds, garages, or other structures pose hazards, they may need repairs or removal.
Recognizing potential issues early in the process helps avoid unpleasant surprises and ensures a smoother transaction.
How long after appraisal to close on FHA?
After the FHA appraisal, it can take 30 to 45 days to close, depending on the complexity of the transaction.
Here's a breakdown of the process:
- Appraiser's Inspection Timeline: Once a lender files an
order, the appraiser typically inspects the property within 3 to 7
days.
- Report Submission: After the inspection, the appraiser
submits their report, which may take a few additional days based on
workload.
- Resolution of Issues: Any flagged issues must be resolved before closing.
Factors like repairs, negotiations, or additional inspections can extend this timeline. For smoother closings, ensure the property meets all FHA appraisal checklist criteria before ordering the appraisal.
What to Do If An FHA Appraisal Fails
An FHA appraisal can fail for two reasons:
1. If the Appraisal Value is Lower Than the Purchase Price
If the appraised value is lower than the purchase price, buyers can negotiate with the seller to reduce the price, cover the difference out of pocket if their budget allows, or walk away from the deal. Thanks to the FHA amendatory clause, buyers can protect their earnest money if they decide to back out and search for another property.
2. If There Are Property Defects
If the appraisal fails due to property defects, the buyer can request the seller to address the flagged issues. If the seller declines, the buyer can choose to cover the cost of repairs themselves.
If neither option works, the buyer can walk away from the contract and resume their search. Fortunately, the FHA amendatory clause protects buyers’ earnest money if they choose not to proceed due to appraisal issues, offering a safeguard against financial loss.
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.
Understanding this timeline helps both buyers and sellers plan accordingly and avoid unnecessary delays in the closing process.
