For FHA Jumbo Appraisal
Requirements click here.
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
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".