Your Guide to Understanding the Appraisal Process for an FHA Loan
If you have a minimum FICO score of 580, you might qualify for a Federal Housing Administration (FHA) loan. That means you can get into a home of your own for a down payment of as little as 3.5%.
Are you looking to get an FHA loan? FHA loan appraisals are like regular appraisals. But the home must meet certain safety standards not required for a regular loan.
Read on for a guide to understanding the appraisal process for an FHA loan.
What’s an FHA Loan Appraisal?
FHA loans allow for smaller down payments. The drawback is you’ll pay loan insurance for the life of the loan. That’s because the low down payment means the lender takes a bigger risk on you.
But it’s a good tradeoff if you’re looking to get into a home of your own and you don’t have the savings for a big down payment. FHA loans are great for first-time buyers and veterans.
The biggest difference between a regular mortgage appraisal and an FHA appraisal is the in-depth look at the safety of the house. The house has to meet specific safety standards to qualify for the loan.
For the FHA loan appraisal, the appraiser has two objectives. He’ll determine the current market value of the home. Second, he’ll inspect the property for minimum standards of health and safety.
The appraiser looks at the home with a checklist in mind. The home must pass the inspection to qualify for an FHA loan.
The checklist involves looking at several items, including:
- Looks for holes in siding or roof
- Signs of water damage
- Houses built before 1979 look for chipped or peeling paint
- Studs or floorboards exposed
- Renovations not completed
- Handrails missing
- Sidewalk and driveway damages
- Proper electrical wiring
- Good drainage
- No lead-based paints
- Drinking water is safe
- All utilities are available
- Operational appliances
- The heater is in working order
the Housing and Urban Development (HUD) oversees the appraisers. Due to inaccurate appraisals in the early 2000s that inflated home values, HUD has made the process tougher.
If the appraiser finds any issues, such as a broken handrail, they’ll flag it for the lender. The property then becomes “Subject To.” This means the loan can’t close until the issues are fixed.
It’s a good idea to catch these issues in advance of closing on the loan so closing isn’t delayed.
Determination of Home Value
An appraiser looks at many variables in determining the home value. On top of the safety inspection, the appraiser looks at comparable home sales in the area. These sales are from the last six months so the figures are current.
The homes are comparable if they have similar square footage. The comp also has the same number of bedrooms and bathrooms. The condition of the home on the comparable sale is also taken into account.
The home value must exceed the value of the loan.
No matter what type of loan you’re getting, it’s advisable to have a home inspection done as well.
Owning Your Own Home
FHA loans help you get into a home of your own without having to save a huge down payment. FHA loan appraisals are a little tougher than regular appraisals but are well worth it.
Are you looking to get into a home of your own? Look into a loan now.
He is an experienced presenter on affordable housing topics including FHA, VA, and conventional home loan programs.
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