FHA Appraisal And Inspection: Guidelines And Requirements
Author:
Kevin GrahamApr 8, 2024
•10-minute read
If you’re getting a Federal Housing Administration (FHA loan), you’ll need to get an appraisal in most cases. An FHA appraisal both establishes the value of the property and makes sure it’s safe for the homeowner or prospective homeowner.
We’ll explain exactly how the FHA appraisal process works, help you create an actionable checklist, talk about the aftermath and then discuss the next steps.
What Is An FHA Appraisal?
An FHA appraisal is a standard yet critical part in the home buying process for buyers using an FHA loan. With an FHA appraisal, a third party – unrelated to the buyer or seller – provides an estimate of the property’s market value. This ensures that lenders aren’t writing FHA loans for more than a property is worth.
What Is An FHA Loan?
Before we look more closely at how FHA appraisals work, let’s review exactly what an FHA loan is. FHA loans are government loans backed by the Federal Housing Administration which operates under the Department of Housing and Urban Development, or HUD. These types of home loans offer lower down payments and more flexible credit requirements than a conventional mortgage. However, qualifying for an FHA mortgage requires a borrower and property to meet certain criteria, and as mentioned above, a home must be appraised and inspected by an FHA-approved appraiser.
Like most government-backed loans, an FHA loan is a non-conforming loan, which means that it doesn’t meet the standards for a home purchase set by government-sponsored enterprises Fannie Mae and Freddie Mac.
FHA Appraisal Vs. Home Inspection
Two things that are commonly confused are an appraisal and an inspection. A home appraisal involves putting a value on a property and a basic safety inspection. It’s used to make sure that the loan-to-value ratio (LTV) after you buy the property represents an acceptable risk for the lender and the FHA as the mortgage investor.
By contrast, a home inspection is a thorough examination of a property you’re looking at buying to identify any potential issues so that you’ll know its condition and see if you’re personally comfortable with it. A home inspection includes checking all major systems and any appliances that may be included in the sale, as well as the home’s roof. If necessary, you can also get specialized inspections for things like septic systems and chimneys.