FHA Minimum Property Standards Checklist: What You Need To Know

When you move into a home, you have every right to expect it to be safe and ready for you to inhabit. To that end, borrowers and lenders both benefit from FHA minimum property standards. While some are pretty basic, having these spelled out sets a minimum livability standard. Let’s give you the lowdown.

The FHA’s minimum property standards cover three requirements:

• Safety: The house should provide a safe and healthy environment.

• Security: The property should offer its occupants protection.

• Soundness: The home shouldn’t have any structural defects.

These criteria are meant to protect those buying a home with an FHA loan. They ensure that properties are move-in ready, meaning they meet a minimum standard for livability.

From a lender’s perspective, it’s important to realize that the collateral for mortgage loans comes from the value of real estate. The property that’s being condemned because the roof is about to cave in or because the house sits on an unstable foundation is severely damaged from a value perspective. It can be a total loss at worst. At best, a buyer wouldn’t be able to move in right away.

Although the focus of this article is FHA minimum property standards, it’s important to note that there are very similar guidelines for other government-funded mortgages, including VA loans.

An FHA appraisal is one performed by an FHA appraiser. There are two main components to the process:

• The appraiser makes sure the home meets the FHA’s minimum property standards. This is where the appraiser will do the checks mentioned above for safety, security and soundness.

• The appraiser has to give an opinion on the value of the property. Because the home serves as collateral that can be sold if at any point you should default on your mortgage, your lender can’t give you more than the property is worth minus your down payment or any equity being left in the home. To facilitate this lending structure, appraisers evaluate your home and look for comparable properties that have recently sold. A comparable for a two-bedroom ranch is likely to be another two-bedroom ranch with similar square footage.

Each FHA appraisal is based on a form called the Uniform Residential Appraisal Report. It asks the appraiser to fill out some basic information on the property and the state of the neighborhood surrounding it. Beyond that, it gets into the physical condition of the property as well as what features the property has, including those that might be unique (for example, solar panels or a swimming pool).

On the second and third page, the appraiser is asked to look at up to three comparable sales in the area and make adjustments to the property value, either positively or negatively, based on how the subject of the appraisal compares against these other properties. From this, the appraiser gives an opinion of value of the property, which is used for the purpose of the mortgage.

Although there are different forms and idiosyncrasies that go along with each property, those two basic elements are present for FHA appraisals, encompassing all of the following property types:

• Single-family homes: This is just the standard Uniform Residential Appraisal Report.

• Multifamily units: If there are two to four units, this is based on Fannie Mae Form 1025 or Freddie Mac Form 72.

• Manufactured houses: These are based on Fannie Mae Form 1004C or Freddie Mac Form 70B.

• Condominiums: Condo appraisals are based on Fannie Mae Form 1073 and Freddie Mac Form 465.

You can use the following checklist in order to make sure a property meets the minimum standards for an FHA appraisal. Although not as thorough, this can be similar to the process that takes place when someone goes through and does a home inspection.

FHA Property Requirements For The Home’s Interior

FHA loans have certain conditions that have to be met for the home’s interior to pass appraisal standards. These don’t include cosmetic issues that are easily fixed.

Common issues impacting appraisals from an indoor standpoint are the following:

• Missing handrails: You have to have accessible handrails for staircases.

• Chipping lead paint: Due to the widespread use of lead-based paint in houses built prior to January 1, 1978, appraisers will require any paint that’s chipping is dealt with.

• Asbestos: If this hazardous material is found, this will need to be taken care of before a home will pass the FHA appraisal.

Home Systems And Appliances

The appraiser has to make sure that a home’s systems are functional. The same goes for any major appliances that are going to be coming with the home.

The home will have its heat source documented and checked. Additionally, the water heater and electrical systems will be checked. The same goes for air conditioning systems.

Basement And Crawl Space

The basement and crawl space of a home should be well-ventilated, with no evidence of termites or other damage. Additionally, you don’t want the basement to be damp or the foundation to be settling.

Bathrooms

In addition to the electronics checks described earlier, the sinks and toilets in the bathroom will be inspected. The appraiser will make sure your shower or bath fixture works and that you can get hot water.

FHA Loan Property Requirements For The Home’s Exterior

In addition to the inside of the home, it's exterior will also be inspected. If a home has any of the hazards listed below, the need for repairs by the homeowner is likely.

Property Access

The subject property needs to have sufficient access to a street or other means of access so that future owners can easily make their way to the property year-round.

Roof

The FHA requires that the roof have at least 2 years of life left. The appraiser will check for things like holes, loose or missing shingles, and proper connections to gutters and downspouts.

Foundation

In order to pass inspection, the foundation must be properly graded and have sufficient drainage so as not to cause water damage. There shouldn’t be any cracks in the foundation or signs of significant settling. Finally, it should adhere to local building codes and present no concerns regarding durability.

FHA minimum property standards protect both lenders and buyers from the struggles that come with properties that have significant physical damage or pose a health and safety hazard of some sort.

Common issues appraisers look for in the exterior are damaged roofs, cracks in foundations and anything blocking access to the property. When it comes to the interior, they look for basic things like missing handrails or chipped or peeling paint that could indicate a lead hazard. Additionally, a home’s major systems, basement or crawl space, and bathrooms are all checked to make sure they’re in working order.

Now that you understand FHA minimum property standards, you can look into your mortgage options by filling out an application or giving one of our Home Loan Experts a call at (833) 326-6018.