A home appraisal is an essential part of buying a home and getting mortgage financing. An appraisal determines the current market value of the property and helps lenders determine if the amount of money they are lending you for the sale is appropriate. If you are applying for a Federal Housing Administration (FHA) loan, however, you will be required to get an FHA-specific appraisal conducted by a U.S. Department of Housing and Urban Development (HUD)-certified professional. What is the difference between this type of appraisal and a conventional one?
The purpose of a traditional appraisal is to determine the value of a property. It involves a licensed real estate appraiser examining the exterior and interior of the home and considering any upgrades or renovations performed on the house. When assessing the home, they will check the size and overall condition of the home as well as the state of the roof, foundation, and landscaping. They will also evaluate the quality of plumbing and lighting as well as the condition of any basements or attics. The appraiser will then compare the size and state of the house to others in the neighborhood to arrive at a fair market price.
Appraisals protect both the mortgage lender and the buyer as they verify the sale is price is worth the money paid, making default and loss less likely. If the appraisal comes back lower than the offered price, the lender will not approve the loan and the buyer and seller have to renegotiate the deal.
An FHA-ordered appraisal differs from a conventional one mainly in its focus, which is safety. Because FHA loans are secured by government funds, lenders are required to take extra precaution to make sure the house is in a safe, working condition to protect against legal suits and claims. The minimum standards, as set by HUD, are stricter when it comes to FHA appraisals; everything should be functioning as it should to pass.
In addition to all the items evaluated in a conventional appraisal, an FHA appraisal will also look to make sure there are no infestations of rodents or insects and no loose or exposed wiring. FHA appraisers will also check that there is adequate ventilation in crawl spaces and attics as well as a fully operational sanitation system and utilities. They will also check that all paint used in the house is lead-free and that outside soil is contaminant-free.
Reasons for a Failed FHA Appraisal
Safety standards are much stricter on an FHA appraisal and several issues might trigger concern, including the discovery of mold, loose railing, improperly wired outlets, non-functioning electronic appliances, and even peeling paint. Any items that do not meet the FHA rules need to be repaired or replaced before closing for the mortgage funding to go through.
While both FHA and conventional appraisals assess the condition and value of a home, the FHA variety is more oriented toward the safety of the property. The standards may be more strenuous, but passing the appraisal is necessary for obtaining the financial benefits of an FHA loan.
If you have any questions about your home's appraisal, give us a call today. We'd love to answer your questions.