FHA Appraisal Guidelines provide direction for FHA Appraisers
When determining whether or not a property meets the criteria for an FHA loan, FHA Appraisers must adhere to the FHA Appraisal Guidelines. This document also serves to provide the FHA repair guidelines, which can help the seller of a home that is going to a buyer with an FHA loan to understand the repairs that need to be made for the FHA loan to be approved.
In Mortgagee Letter 05-48 (aka Mortgagee Letter 2005-ML-48), the FHA provided examples for minor property conditions that do not require automatic repair. In addition, this document provided a list of conditions that will require repair prior to the closing and funding of the loan on the property.
FHA permits an “as-is” appraisal for homes being financed with FHA loans that have minor property deficiencies resulting from deferred maintenance and normal wear and tear. The current FHA appraisal requirements have been in place since January 1, 2006.
Please read FHA Appraisals: an Overview for more basic information, including FHA inspections vs. regular home inspections.
FHA Appraisal Concerns: Safety and Soundness
Two areas of primary concern for FHA underwriters (the people who decide whether or not a loan will be approved) are Safety and Soundness:
- Safety: FHA underwriting guidelines require that lenders review the appraisal to see if the appraiser has made note of property conditions that will affect the health and safety of the occupants.
- Soundness: FHA underwriting guidelines require that lenders review the appraisal to see if the appraiser has made note of property conditions that jeopardize the soundness and structural integrity of the property.
Some conditions do NOT require automatic repair
These conditions do not require automatic repair in order for a property to meet FHA underwriting criteria:
- Missing handrails
- Cracked or damaged exit doors that are otherwise operable
- Cracked window glass
- Defective paint surfaces in homes constructed post 1978
- Minor plumbing leaks (such as leaky faucets)
- Defective floor finish or covering (worn through the finish, badly soiled carpeting)
- Evidence of previous (non-active) Wood Destroying Insect/Organism damage where there is no evidence of un-repaired structural damage
- Rotten or worn out counter tops
- Damaged plaster, sheet rock or other wall and ceiling materials in homes constructed post- 1978
- Poor workmanship
- Trip hazards (cracked or partially heaving sidewalks, poorly installed carpeting)
- Crawl space with debris and trash
- Lack of an all weather driveway surface
Some conditions DO require automatic repair
These conditions do require automatic repair in order for a property to meet FHA underwriting criteria:
- Inadequate access/egress from bedrooms to exterior of home
- Leaking or worn out roofs (if 3 or more layers of shingles on leaking or worn out roof, all existing shingles must be removed before re-roofing)
- Evidence of structural problems (such as foundation damage caused by excessive settlement)
- Defective paint surfaces in homes constructed pre-1978
- Defective exterior paint surfaces in home constructed post-1978 where the finish is otherwise unprotected.
Please note that these two lists are not all-inclusive but are provided here to show the guidance provided by FHA for FHA appraisal requirements for a property to meet FHA underwriting guidelines.