Home appraisals are a regular part of the home buying process and are often required by lenders. Home appraisals are performed to determine a home’s actual value so lenders can be sure they’re making a sound investment.
Every loan type has its own appraisal requirements, but one of the strictest home appraisals is an FHA home appraisal since FHA loans are backed by the federal government. If you’re looking to finance a home with an FHA loan, here are six of the most common questions buyers have regarding FHA home appraisals.
1. What is an FHA Home Appraisal?
FHA home appraisals are required inspections for anyone applying for FHA financing. FHA home appraisals have stricter guidelines than most regular appraisals, in order to protect the federal government’s investment. This means buyers run the risk of homes not being approved for FHA financing.
2. How Do FHA Home Appraisals Differ From Traditional Appraisals?
While FHA mortgage programs can make it easier for buyers to afford a home, the appraisal process is designed to protect not just the government, but also the home buyer from making an unwise buying decision.
Since this inspection process is more thorough, it is also the most expensive appraisal.
3. What Do FHA Home Appraisals Consider?
The minimum property standards FHA appraisals must review were established by the Department of Housing and Urban Development (HUD). These standards dictate that everything inside of the home must be working exactly as it was designed.
The appraiser responsible for the FHA appraisal will have a detailed list of instructions for inspecting your home. A few items on the list include:
- Checking for lead paint
- Reviewing wood-to-earth contact that increases the risk of termites
- Ensuring railings are in place on stairs, patios, balconies, decks, and porches
- Determining if windows are secure
- Making sure the roof is sound and does not leak
- Reviewing the water supply meets minimum standards
4. What Are “Subject To” Appraisals?
Following the inspection process, some red flags on the report may be required to be fixed prior to closing. This is usually referred to as a “subject to” appraisal, where the home’s value is determined based on the seller or buyer making necessary repairs.
Fixing these issues could potentially push back the closing date and in some cases can cause the sale to fall through. Scheduling the FHA appraisal early on can prevent any required repairs from delaying the home closing.
5. Are There Drawbacks of FHA Appraisals?
While FHA appraisals are designed to protect buyers’ interests, there are several reasons why buyers might want to turn to alternative funding methods when buying a home.
Some sellers do not want to go through the lengthy and detailed FHA appraisal process and may not accept buyers using FHA financing methods. This could prevent buyers from making an offer on a home they really want.
FHA appraisals also require arranging an inspection with a HUD-approved home inspector. However, while this appraisal seems like an inspection, it actually isn’t. In addition to this mandatory appraisal, buyers are encouraged to seek an actual home inspection, as well, which will cost additional money.
In addition, since FHA appraisals are the most expensive, buyers might save more money by selecting an additional mortgage lender with less strict appraisal requirements.
Lastly, since the process is so detailed, FHA appraisals often come in at an overall lower value than standard appraisals.
6. Are FHA Appraisals Worthwhile?
If you find a home where FHA financing is accepted, paying the extra money for the FHA appraisal may be worthwhile for both the buyer and seller. While this appraisal is more thorough, often FHA appraisals uncover minor issues that are fairly easy and inexpensive to repair.
Plus, FHA appraisals can add additional peace of mind for both buyers and sellers. And, if low down payment options are important to you, FHA loans might be your best financing option.
If you’re worried about FHA home appraisals or have any questions on the process or alternative financing methods, it’s best to talk to a qualified real estate agent. An agent can answer any questions you have about FHA home appraisals and walk you through the thorough process.
You can get connected to a full-service Clever Partner Agent who can answer any FHA appraisal questions you have, and navigate you through the entire buying process. Best of all, in eligible states, Clever Partner Agents can offer buyers $1000 back in the form of a home rebate at the time of closing.
Get connected with a Clever Partner Agent today.