What is an FHA appraisal inspection?
An FHA appraisal inspection is a thorough examination of a property to determine its value and ensure its compliance with the Federal Housing Administration (FHA) guidelines. It is conducted by a certified FHA appraiser who assesses various aspects of the property, such as its condition, safety, and market value.
During the inspection, the appraiser will evaluate the property's structural integrity, functionality of its systems (e.g., plumbing, electrical), and overall livability. They will also consider factors like the property's location, proximity to amenities, and any potential hazards that may affect its value.
The purpose of an FHA appraisal inspection is to protect both the lender and the borrower. It helps the lender determine the maximum amount they can lend on the property, based on its appraised value. For the borrower, it ensures that the property meets certain safety and livability standards, providing them with a sound investment.
Why is an FHA appraisal inspection important?
An FHA appraisal inspection is important for several reasons. First and foremost, it protects the lender by minimizing the risk of lending on a property that may not hold its value or pose safety concerns. By ensuring that the property meets FHA guidelines, the lender can be confident in the investment.
Secondly, an FHA appraisal inspection is crucial for the borrower. It provides them with an accurate assessment of the property's condition and value, helping them make informed decisions about their purchase. It also ensures that they are investing in a property that meets certain safety and livability standards.
Furthermore, an FHA appraisal inspection is important for the overall housing market. By setting standards for property condition and value, it helps maintain a level playing field and prevents the sale of subpar or overpriced properties. This promotes fair and sustainable homeownership.
Preparing for an FHA appraisal inspection
To prepare for an FHA appraisal inspection, there are several steps that Realtors can take to ensure a smooth process and maximize the property's value:
An Appraiser looks for what we call, “The 3 S’s”
S-Safety
S-Security
S-Soundness
Safety is pretty obvious. Making sure the house is safe for day to day living.
Security isn’t door locks, it’s HUD’s security in the loan. It’s the home’s ability to serve as collateral for the loan. Is the house on the edge a cliff that could give way someday?
Soundness relates to the structure and structural components of the dwelling. They include not only the foundation but also other elements such as floor, wall and roof framing systems.
If any of these issues are out of compliance, HUD requires the Appraiser to call them out in the appraisal and to have them corrected. The Appraiser will re-inspect the property, at an additional fee, to make sure the issues have been remedied.
1. Clean and declutter: A clean and organized property makes a positive impression on the appraiser and can enhance the perceived value.
2. Complete necessary repairs: Address any visible issues or safety hazards, such as leaky faucets, broken windows, or faulty electrical systems. These issues can negatively impact the appraisal value.
3. Provide access to all areas: Ensure that the appraiser has access to all parts of the property, including crawl spaces, attics, and garages. Restricted access may hinder the inspection and lead to additional fees and time for re-inspections.
4. Compile relevant documents: Gather important documents related to the property, such as permits, warranties, and renovation records. These can help support the property's value during the appraisal process.
5. Highlight property features: Provide the appraiser with information about any recent renovations, upgrades, or unique features of the property that may positively impact its value.
By taking these steps, realtors can help ensure a successful appraisal inspection.
Common issues found during an FHA appraisal inspection
When an FHA or USDA loan is being used, the appraiser has two objectives. The Department of Housing and Urban Development (HUD) requires them to determine the current market value, as with any appraisal. They also require a property inspection (Not to be confused with a Home Inspection by a professional home inspector), to make sure the home meets HUD's minimum standards for health and safety.
Cosmetic issues like soiled or worn floor coverings, soiled walls or cracked windows are o.k. and an Appraiser should not call these out for repair.
Here are some of the most comm issues we find and need repair:
1. General Safety hazards: Appraisers look for potential safety hazards, such as faulty wiring, mold or mildew, or structural deficiencies.
2. Peeling paint or exposed, bare wood. If a home was built before 1978, there could be lead based paint. Chipping or peeling paint must be removed and disposed of properly. PRO TIP- Make sure all chips are collected on a tarp. If the Appraiser finds paint chips on the ground, there will be further requirements to remove them.
3. Utilities MUST be on and available for testing, including hot water.
4. Make sure tank style water heaters are double strapped.
5. Make sure CO and Smoke detectors are installed. For both CO and Smoke: one on each level, outside the sleeping areas. Add for Smoke; one in each bedroom.
6. Gutters and downspouts must be intact and serviceable and drain water at least 4' away from the foundation.
7. Handrails- Always make sure there are handrails anywhere there are at least 3 steps.
8. Make sure all appliances are operational. The Appraiser is required to test them.
9. Exposed electrical must be covered. The most common issue we see as Appraisers, that require repair, is in uncovered switches and plugs. Make sure those switch plates and plug covers are installed. This is a very easy, inexpensive fix.
Realtors save TIME and MONEY by walking through a property and fixing health and safety issues before the Appraiser calls them out. The majority of FHA items that an Appraiser will call out are relatively minor and an easy fix.
