FHA Appraisal           

For FHA Jumbo Appraisal Requirements click here.

Regular FHA Appraisal Requirements

Once you have made your offer to purchase and had it accepted, completed your other home inspections, you are ready for the FHA appraisal process. Keep in mind the fha appraisal is for the benefit of the lender. You may have an idea what the property is worth but the lender must also make their determination. Determining the accurate value of a home to be financed can help limit a lender's risk associated with a loan because it is the property that will provide the means of recovery for the lender should the borrower default on the loan.

For example, ABC Mortgage Co. loans Joe "first time homebuyer" $110,000 against a property that was worth $115,000. If Joe does not pay his mortgage, the lender will have to sell the property at foreclosure (which is a costly and time-consuming process). Even if the home sells for $110,000 (or any value less than the remaining balance on the loan plus the foreclosure expenses), the ABC Mortgage Co. will have a loss on the transaction as they will most likely not recover their foreclosure fees and lost interest income. If the true value of the home was not $115,000 the lender will take an even greater loss. However, having a solid, objective opinion about the value of the home will help the lender in assessing any potential risk associated with the loan and prevent a loss due to foreclosure.

A residential real estate appraisal is generally required for all mortgage transactions to assist in limiting such risks. It is a supportable estimate of property value, drawing its conclusions from data obtained from the market and the subject property. In addition, the mortgage company hires the appraiser (the licensed individual that conducts the appraisal), rather than the buyer or the seller, in order to provide a clear and objective statement of a property's value. The buyer may be required to pay for the appraisal, but it is the lender who hired the appraiser.

The Department of Housing and Urban Development (HUD) requires appraisals for all FHA insured loans, except Streamline refinances. Though the qualifications of an appraiser will vary, HUD requires a minimum standard to be met by all FHA approved appraisers to include additional education and training, state licensing or certification, and approval by the lender to conduct FHA appraisals.

FHA emphasizes that an appraisal is not a home inspection and it does not guarantee that a home is without flaws. However, FHA does takes steps to try to see that the home is in a safe, sound and sanitary condition. For that reason, the FHA appraiser is expected to require repair or replacement of anything that may affect the safe, sound and sanitary habitation of the house. If repairs are required, the buyer will receive a list from the lender (see VC sheets) and the seller (in most cases) may be responsible for seeing that the repairs are taken care of according to set local and FHA guidelines.

HUD/FHA MAKES NO WARRANTIES AS TO THE VALUE AND/OR CONDITION OF ANY FHA-APPRAISED PROPERTY, therefore buyers/borrowers must determine for themselves that the price of the property is "reasonable" and that its condition is "acceptable".

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