FHA appraisal requirements checklist
Senior Content Writer
Quick insights
- An FHA appraisal evaluates a home’s estimated market value and whether it meets applicable FHA property requirements.
- The lender orders the appraisal from an FHA-approved appraiser, who examines the property and reviews comparable home sales before submitting a report.
- If the home appraises below the purchase price or has property issues, the application process may not continue until repairs or other steps are completed.
Once you’ve found a home, had an offer accepted, and you’re set on using an FHA loan, the FHA appraisal may be the next critical step. If you’re using an FHA-backed mortgage, the appraisal helps your lender confirm the home’s estimated market value and whether the property meets FHA requirements.
Understanding what an FHA appraiser reviews and how the process works can help you prepare for this part of your homebuying journey.
What is a home appraisal?
A home appraisal is an estimate of the market value of a property. An independent party performs the appraisal so that the appraised value is not influenced by the buyer or the seller. An appraisal is a standard requirement for most purchases and refinances.
Lenders also use the appraised value to determine the loan-to-value ratio (LTV) of your mortgage. This calculation helps lenders avoid loaning out more than they are willing to risk. LTV can help also buyers avoid borrowing more than the home is worth.
What is an FHA appraisal?
An FHA appraisal confirms the value of a property and that it meets the minimum property standards set by the U.S. Department of Housing and Urban Development (HUD).
Two things usually happen as part of an FHA home appraisal:
- Site visit: The FHA appraiser visits a home in person to write notes and take photos. They check for the structure’s quality, the interior and exterior condition, the state of fixtures and systems, and the condition of the lot.
- Market research: The appraiser researches selling prices for comparable homes by reviewing homes that sold in the same general area over the past six months.
The site visit and the market research help determine the market value of the home.
How does an FHA appraisal work?
After you apply for an FHA loan and identify the home you want to purchase, your mortgage lender generally orders an appraisal from an FHA-approved appraiser. The process typically follows these steps:
- The lender orders the appraisal: Your lender selects an FHA-approved appraiser to provide an independent assessment of the property.
- The appraiser visits the property: The appraiser examines the home’s interior and exterior systems, noting the condition and issues that may affect property value or compliance with FHA standards.
- The appraiser researches the local market: The appraiser reviews recent sales of comparable properties and considers the home’s location, size, features and condition to estimate its market value.
- The lender reviews the appraisal report: Your lender uses the report during mortgage underwriting to evaluate the property’s value and eligibility. If repairs or additional information are required, those items may need to be addressed before the loan can proceed.
FHA appraisal checklist
FHA appraisers adhere to HUD guidelines for minimum property standards. The following are some of the appraisal requirements or repair items that may be necessary for a property to be approved for an FHA loan. The property must:
- Have an undamaged exterior, foundation and roof
- Have safe and reasonable property access
- Not contain loose wiring and exposed electrical systems
- Have functional utilities, including gas, electricity, water and sewage
- Have a working, permanent heating system that can heat the property adequately
- Have surfaces free of chipping or peeling lead-based paint
- Have adequate access to attic spaces and natural ventilation in crawl spaces
- Have access to potable water
- Be free from wood-destroying insect infestations
- Not have interior and exterior health and safety hazards, such as no handrails on steep staircases
- Be a marketable property
Please note that this list is not exhaustive, and certain requirements, such as security bars on windows, may vary depending on the specific property.
Next steps after an FHA appraisal
Your FHA appraisal will confirm the home’s condition and market value. Ideally, this lines up with the amount all parties expected. If that’s the case, the house will be approved for an FHA loan, subject to the lender’s additional requirements, and you can move forward with closing. Sometimes, your FHA appraisal might bring up some issues that you, the seller and the lender need to address before the property is approved.
Some common problems include:
- Repairs: FHA appraisals may note repairs that must be made before the loan can go forward. When this happens, the house is conditionally approved, and the appraiser notes what the market value will be after the repairs. In the meantime, you have to work with the seller to ensure the repairs are made before closing, or in certain cases, funds may need to be put in an escrow account if the repairs have to be completed after closing (like exterior painting during winter months in colder climate states).
- Low appraisals: Recovering your deposit depends on contractual provisions, such as appraisal contingencies, and is not universally guaranteed. Alternatively, you can ask the seller to reduce the price so that you can still get the same FHA mortgage. A final option is that you can apply for a smaller FHA loan and pay for the difference with additional assets.
- Deal breakers: If the appraisal notes a health or safety hazard that the seller will not agree to fix, the lender won't approve the property. For example, the FHA usually won’t insure a home that needs major repairs to be livable, such as a structural crack in the foundation. In this case, you can't get an FHA loan.
In summary
FHA loans can be a good choice of mortgage for first-time homebuyers. The requirements can put a home purchase within reach because of the down payment and credit requirements. However, FHA loans require appraisals to verify value and alignment with minimum property standards.
If you’re looking to learn more about FHA loans or other mortgage options, consider speaking to a Home Lending Advisor.
FAQs about FHA appraisals
Do FHA loans require an appraisal?
You have to get an FHA home appraisal if you’re planning to use an FHA loan to buy a home. However, not all FHA refinances require an appraisal. Contact your Home Lending Advisor for details.
Typically, your lender orders the appraisal after you sign an application. After the appraisal, you and your lender can review it and decide whether you still want to proceed with the loan. FHA home appraisals are valid for 180 days after issue. For the average buyer, 180 days is plenty of time to complete the closing process. If you need more time before signing the loan closing paperwork, the lender will need to verify the property’s value has not declined.
Who does FHA home appraisals?
Trained and FHA-approved professionals complete FHA appraisals. To be approved, appraisers must take an exam and earn a state license before applying to be registered on the FHA roster of approved appraisersOpens overlay.
Who pays for an appraisal on an FHA loan?
In many cases, the applicant is responsible for the appraisal costs. The price of the appraisal is usually included in the closing costs. However, lenders may require you to pay the cost of an appraisal before that, at the time of application, in case the loan doesn’t close.
How much does an FHA appraisal cost?
FHA appraisals may cost several hundred dollars, depending on the lender. Different factors may impact the cost of your FHA appraisal:
- Type of property
- Location
- Number of units
- Unique attributes (like a dome house)
What happens if the FHA appraisal uncovers problems?
If the appraisal identifies property issues, repairs may need to be completed and verified before the FHA loan can proceed. If the home appraises below the purchase price, the buyer may renegotiate the price, pay the difference or discuss other options with the lender. Unresolved property or valuation issues may prevent the loan from being approved.
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