What Sellers Can Expect From The Fha Appraisal Process
A typical FHA appraisal inspection takes about 30 minutes to complete. It generally takes a few days to complete the report, which is then submitted to the lender for review, Keane shares.
The lender reviews the report and gives a copy to the borrower for their review. If there are any repairs required, the Realtors® are notified, and the repairs will need to be inspected prior to closing. The most common issues Keane encounters are peeling paint and missing safety handrails.
What Is An Fha Inspection
A Federal Housing Administration inspection is a thorough inspection that is carried out for any property that involves an FDA loan. The main aim of the inspection is to ensure that the house in question has all the basics required for living, such as electricity, access to clean drinking water, adequate heating facility, fire exits, and a stable roof. This provides the buyer with satisfaction that the house he has purchased is worth the price.
If a house does not meet the FHA requirements, then the buyer is not allowed to purchase that particular house and his loan is not granted. One thing to keep in mind is that the buyer is responsible for paying for the inspection of the house.
A licensed U.S. Department of the Housing and Urban Development home appraiser must carry out the FHA inspection. The inspector inspects to ensure that the house meets the minimum requirements of the house in terms of structure, safety, and security.
Outbuildings And Old Garages Might Be In Fha Repair Requirements
A prime example of an FHA repair requirement
Ive got a real pickle coming up soon with a new listing in Sacramento because its likely to sell to a buyer obtaining an FHA loan. Why is that a pickle, you might wonder? Well, back when cash investors were quickly snapping up every home that came on the market, real estate agents didnt much worry about FHA repair requirements, but thats not the case anymore. FHA loans are a big deal now because the investors have pretty much left the market.
The investors who remain wont pay market value. They hit prices hard. Ive yet to see an offer lately from an investor at or above the list price. They are all trying to grind. It makes you want to say whoa, thanks for driving up the prices, now stop trying to drive them down. Most sellers would rather sell a home to an owner occupant anyway. They dont want to change the demographics of their neighborhood by moving in tenants. They want a first-time home buyer to purchase their home and love it as much as they did. Homes are very emotional vehicles.
The time to discover whether a repair is called out is not a few days before closing, though. Its much better to be proactive and take care of this stuff beforehand. One item I am seeing pop up more often on repair requirements is an old outbuilding. That old storage shed or garage in the back yard that nobody uses and is rotting in the sun? Huge problem today. It most likely needs to be demolished and removed.
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Do Fha Loans Require Pest Inspections
FHA loans do not require pest inspections in most cases. In the event the FHA appraiser sees signs of termite damage or if the area is located in a known termite-heavy region, the lender might be required to send a termite inspector to the property.
As a buyer, you can also request a full pest or wood-destroying insect inspection from a local pest control company. These ensure the home youre buying is free of any potential infestations that could pose health hazards .
Fha Loans Do Not Require An Inspection
All borrowers who use an FHA loan to purchase a home will receive a home inspection disclosure document from the Department of Housing and Urban Development. It is one of several documents lenders are required to give borrowers who use this particular program.
This document states that a home inspection will only occur if you arrange for one. FHA does not perform a home inspection.
Again, this quote comes from HUD, which is the federal department that oversees the Federal Housing Administration mortgage insurance program. They are the official source for all guidelines and requirements relating to this program. And their disclosure clearly states that a home inspection is not required when using an FHA loan.
This disclosure goes on to clarify the difference between appraisals and inspections, as we have already discussed above. It explains that appraisals estimate the value of the property for lenders.
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What Happens After An Fha Appraisal
For the following sections, lets take a look at the process through the eyes of a potential home buyer named Casey. Every situation is different but depending on the volume of work being handled by the appraisal management company, the difficulty of doing the appraisal and finding comparable properties, Casey should expect to have the appraisal report back within a few business days. This section will go over the various scenarios that can come up.
What Happens If The Appraiser Marks Something For Further Repair
The appraiser may note that items need to be corrected or may need further inspection. If so, they will mark it “as-repaired” meaning, the value of the home and eligibility for meeting the Minimum Property Requirements is conditionally based on the repair of the item.
Some conditions are fixable and can easily be addressed with repairs, in which case, the home will be approved conditionally. But in other instances where significant repairs are necessary, the lender may reject the property.
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What Is An Fha Home Appraisal
A home appraisal is an estimate of the market value of a property. Since a third party performs the appraisal, the market value is not influenced by the buyer or the seller. An appraisal is a standard requirement for most mortgages and refinances.
Lenders use the market value from the appraisal to determine the loan-to-value ratio of your mortgage. This calculation helps lenders from loaning out more than they are willing to risk and can help limit buyers from borrowing more than the home is worth.
An FHA appraisal also confirms that the property meets the minimum standards set by the U.S. Department of Housing and Urban Development .
FHA home appraisals require two steps:
Reasonably Safe Site Conditions
The appraiser looks at externalities, or off-property issues that affect the homes value and marketability. Some environmental issues could make a property less safe.
- Stationary storage tanks
- Noxious fumes
Natural disasters also play a role in FHA approval. If your property is in an area prone to floods, wildfires, or mudslides, the lender may require disaster insurance or reject the loan altogether. According to the HUD Single-Family Housing Policy Handbook, The Appraiser must report the presence of Externalities so that the Mortgagee can determine eligibility.
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Can A Seller Reject An Fha Loan
Considerations. Theres no law that can compel a seller to accept FHA financing, though sellers artificially limit their buyer pool by doing so. Buyers, though, can help their cause by agreeing to an as is appraisal, for one. They might also consider asking for less in seller contributions to help with closing costs.
Fha Appraisal Requirements: Checklist And Guidelines
See Mortgage Rate Quotes for Your Home
All properties bought with an FHA loan must go through an FHA appraisal, which accomplishes two things: It establishes the market value of the property and determines if the home meets the General Acceptability Criteria established by the U.S. Department of Housing and Urban Development .
FHA loans are government-backed mortgage designed to help people with lower incomes or credit scores buy homes. When applying for an FHA loan, your lender uses the results of the appraisal to determine if the property is eligible for financing. We cover the requirements mandated by the Federal Housing Administration for appraising properties.
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Sufficient Drainage And Grading
The appraiser checks for readily observable evidence of grading and drainage problems. This entails looking for effective drainage control measures like gutters, downspouts, and appropriate grading to deliver water away from the structure. The appraiser will note standing water if it seems related to a drainage issue.
Proper grading directs rainwater on the roof and the ground away from the structures foundation. If existing grading does not allow for proper drainage, the FHA appraiser will require the seller to address the issue. Significant grading issues are best left to the professionals to prevent costly water damage.
How Does An Fha Appraisal Work
The FHA appraisal occurs after the sales agreement is signed by both parties and before closing. The appraiser is chosen by the lender and paid for by the borrower. The cost typically ranges from $312 to $404, according to HomeAdvisor, a platform that connects homeowners with plumbers, painters, electricians, and other home contractors.
FHA appraisals require a walkthrough of the home to make sure the minimum property requirements are met, in accordance with HUDs Single-Family Housing Policy Handbook. An appraiser will look at any visible damage to the home and its structure, but typically arent as thorough as a licensed home inspector.
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Does The Fha Have An Inspection Checklist
Does FHA have an inspection checklist? The question is a popular one, but it reveals a common misconception about the nature of FHA appraisals. It is one thats extremely important to clarify-the FHA appraisal is NOT a home inspection and shouldnt be considered one.
The FHA Appraisal Is A Tool For The Lender, Not The Borrower
In spite of the fact that an FHA appraiser is required to insure the property to be purchased with an FHA home loan meets minimum standards, the real usefulness of the appraisal is NOT for the borrower. The lender uses the appraisal to determine the fair market value of the home and that purpose should be considered its primary end result.
That means the FHA appraisal is NOT a stamp of FHA approval, or an indication that the home is problem-free. Do not rely on the appraisal to tell you things about the true condition of the home-you will be disappointed if you do.
The Optional, Borrower-Initiated Home Inspection Is The Only Way To Make An Informed Purchase
Those who buy a home without paying for a home inspection are buying a home on good faith alone. The only way to know more about a homes true condition is to have the property inspected by a professional. The home inspector will examine the roof and other areas of the home in a much more detailed and involved way.
Is There A Home Inspection Checklist?
What IS The Difference Between The Appraisal And The Home Inspection?
Shedding Light On The Electrical System
The home’s electrical system must rate for at least 60 amps. The circuit or fuse box must be in good condition without any exposed wires. Old-style knob-and-tube wiring gets inspected to make sure it is in satisfactory condition. All outlets must have the proper grounding with ground fault interrupt outlets required in bathrooms and kitchens when within 2 feet of a water source.
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Fha Guidelines Are Flexible
The FHA ultimately leaves decisions about well and septic inspections to lenders. FHA-approved lenders know the agency’s guidelines for property condition and required repairs, and must use prudent underwriting when making loans for the FHA to insure. According to standards the FHA provided to its lenders and appraisers in 2005, all “observable property deficiencies” must be reported on appraisals, and lenders must use “professional judgment” to determine whether automatic inspection of a property’s well or septic systems will be needed to approve a loan.
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When Do I Get An Fha Inspection
The loan will first need to be conditionally approved. You pass the initial requirements for income, assets, credit, etc. Then, you are able to move ahead with the FHA inspection and appraisal. It is done in this order, so you do not spend money on an inspection if you do not meet the other qualification requirements. You and find an inspector using the FHA inspector lookup tool.
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Do I Make Too Much For Fha
When it comes to income limitations and requirements for FHA home loans, there is no minimum or maximum. Furthermore, FHA loan rules do not say that its possible to earn too much to qualify for an FHA loanthese loans are for any qualified borrower, not just people who cannot afford a conventional home loan.
Why Are Fha Loans Bad For Sellers
Unfortunately, some sellers see the FHA loan as a riskier loan than a conventional loan because of its requirements. The loans more lenient financial requirements may create a negative perception of the borrower. And, on the other hand, the stringent appraisal requirements of the loan may make the seller nervous.
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What Is An Fha Appraisal
An FHA mortgage is a government-backed loan that offers low-down payment home financing to people who otherwise may not qualify for a conventional mortgage.
The FHA appraisal, which is completed before closing, reviews the home in two key ways. A regular appraisal is simply looking at the value of the property, FHA appraisals also check to make sure the home is habitable and safe, says Nick Gromicko, founder of the International Association of Certified Home Inspectors.
But these types of appraisals werent always required. FHA and HUD realized the importance of home inspections after many homes were thrown into foreclosure because the new owners didnt have any money to repair major deficiencies. They had put every penny they had into the downpayment, but because they didnt get a home inspection, they didnt realize that the furnace didnt work or the roof leaked, says Frank Lesh, ambassador at the American Society of Home Inspectors
When Do I Need An Fha Home Appraisal
You have to get an FHA home appraisal if you’re planning to use an FHA loan to buy a house. In most cases, your lender orders the appraisal after you and the seller sign a sales contract. Once you receive the appraisal, you and your lender can review it and decide whether you still want to proceed with the loan.
All FHA home appraisals last for 120 days after issue. For the average buyer, 120 days is plenty of time to complete the closing process. If you need more time before signing the loan closing paperwork, you may be able to apply for an extension.
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How To Get A House To Pass Fha
Selling a home to a buyer using an FHA-backed loan requires that your home pass an inspection carried out by an FHA appraiser. The FHA has minimum standards that all homes purchased using the program must meet prior to the release of funds. The inspection ensures that the home is priced correctly for the market and that its livable in its present condition. Since the buyer cannot purchase your home without the property going through the inspection process, its important that you prepare properly beforehand to make sure the home passes.
Perform a home inspection, looking for any defects that may have an adverse effect on the health or safety of the new occupants. Take a clipboard with several sheets of paper and a pen along with you during the inspection to mark down defects found so that you can repair them later.
Inspect the outside of the home. Check for the presence of any toxic chemicals, standing pools of water or soil erosion, and ensure that there is adequate water drainage. Examine the pavement, looking to see if the road surfaces bordering the property contain a covering of all-weather material. Check the roof for damage using a pair of binoculars to get an up-close view. Roofs must have 3 years minimum remaining life to pass. Measure the openings of windows that open into rooms where occupants sleep. These windows must have a minimum opening consisting of 24 inches in height and 20 inches in width.
Will Sellers Accept Offers With Fha Loans
With housing as hot as it is, sellers often arent willing to make repairs especially large or expensive ones. They, and their real estate agents, may be hesitant to accept an offer with an FHA mortgage for this reason.
If a seller accepts an offer with an FHA loan, and the appraisal comes back low or with costly repair requirements, two things can happen. Either the seller has to put more money into the house and accept a lower sale price or the buyer can walk away.
Neither is a good outcome for the seller. In the first scenario, they make less money on the sale. In the second, theyve missed out on showing the home to other prospective buyers. And the longer the home is on the market, the more it raises questions about the property. When a house is listed again, buyers may assume theres something wrong with the home and opt not to see it.
Still,using an FHA loan doesnt mean your offer wont be accepted.
Remember, most homes will pass an FHA appraisal. But there are a few ways you can make your offer more attractive to sellers:
A preapproval from a reputable lender tells the seller that you have the money to buy the home. Preapprovals are reviewed by an underwriting team that assesses your income, debts, savings, , and other key factors for qualifying for a loan. Getting preapproved can boost sellers confidence in your offer.
Offer more earnest money
Include a lease-back and allow the seller to stay in the home after closing
Buy the home as-is
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