If you don’t pay cash when purchasing an FHA approved condo or home, your lender will require an appraisal. Not only does a real estate appraisal help safeguard a lender, but it also ensures you’re not overpaying for a property based on the current market. When purchasing using an FHA loan, there are some additional protections required with an FHA appraisal which the property will need to meet. The following FHA appraisal standards are required when using an FHA mortgage to ensure insurability of your FHA approved condo or home.
What Are the FHA Appraisal Property Standards?
According to the U.S. Department of Housing and Urban Development (HUD), FHA requires that both condos and homes financed using an FHA loan meet the following minimum standards:
- Safety: The home should protect the health and safety of the occupants.
- Security: The home should protect the security of the property.
- Soundness: The property should not have physical deficiencies or conditions affecting its structural integrity.
An FHA appraiser will observe the property’s condition and report the results on the FHA appraisal form.
With a single-family home, an FHA appraiser will be asked to describe the basic features of the property, such as the number of stories, year it was built, square footage, number of rooms and location. The FHA Appraiser is also required to “describe the condition of the property (including needed repairs, deterioration, renovations, remodeling, etc.)” and will be asked “are there any physical deficiencies or adverse conditions that affect the livability, soundness or structural integrity of the property?” The FHA condominium appraisal is similar but has condo-specific questions about the common areas, homeowners association, number of owner-occupied units and so on.
The FHA does not require the repair of cosmetic or minor defects, deferred maintenance and normal wear if they do not affect the safety, security or soundness of the home. The FHA says that examples of such problems include but are not limited to the following:
- Missing handrails
- Cracked or damaged exit doors that are otherwise operable
- Cracked window glass
- Defective paint surfaces in homes constructed post-1978 (because of lead paint hazards)
- Minor plumbing leaks (such as dripping faucets)
- Defective floor finishes or coverings (worn through the finish, badly soiled carpeting)
- Evidence of previous (non-active) wood-destroying insect/organism damage where there is no evidence of unrepaired structural damage
- Rotten or worn-out counter tops
- Damaged plaster, sheetrock or other wall and ceiling materials in homes constructed post-1978
- Poor workmanship
- Trip hazards (cracked or partially heaving sidewalks, poorly installed carpeting)
- Crawl spaces with debris and trash
- Lack of an all-weather driveway surface
There are many areas, however, where the FHA does require problems to be remedied in order for the sale to close. Here are some of the most common issues that homebuyers are likely to face.
Electrical and Heating
- The electrical box should not have any frayed or exposed wires.
- All habitable rooms must have a functioning heat source (except in a few select cities with mild winters).
Roofs and Attics
- The roofing must keep moisture out.
- The roofing must be expected to last for at least two more years.
- The appraiser must inspect the attic for evidence of possible roof problems.
- The roof cannot have more than three layers of roofing.
- If the inspection reveals the need for roof repairs, and the roof already has three or more layers of roofing, the FHA requires a new roof.
- The water heater must meet local building codes and must convey with the property.
Hazards and Nuisances
- Contaminated soil
- Proximity to a hazardous waste site
- Oil and gas wells located on the property
- Heavy traffic
- Airport noise and hazards
- Other sources of excessive noise
- Proximity to something that could explode, such as a high-pressure petroleum line
- Proximity to high-voltage power lines
- Proximity to a radio or TV transmission tower
- Property Access
The property must provide safe and adequate access for pedestrians and vehicles, and the street must have an all-weather surface so that emergency vehicles can access the property under any weather conditions.
Any defective structural conditions and any other conditions that could lead to future structural damage must be remedied before the property can be sold. These include defective construction, excessive dampness, leakage, decay, termite damage and continuing settlement.
If an area of the home contains asbestos that appears to be damaged or deteriorating, the FHA requires further inspection by an asbestos professional.
The home must have a toilet, sink and shower.
The FHA requires properties to have working kitchen appliances, particularly a working stove. However, FHA documents do not mention any requirements regarding appliances.
For additional information, consult the Department of Housing and Urban Development’s Homeownership Center (HOC) Reference Guide.
Homebuyer Remedies for Properties Below Minimum Standards
The first step should be to ask the seller to make the needed repairs. If the seller can’t afford to make any repairs, perhaps the purchase price can be increased so that the sellers will get their money back at closing.
If the seller is a bank, it may not be willing to make any repairs. In this case, the property will have to go to a cash buyer or a non-FHA buyer whose lender will allow them to buy the property in the present condition. Another option is to apply for an FHA 203(k) loan, which allows the purchase of a home that has significant problems.