FHA appraisers perform many of the same functions as appraisers for conventional loans, but with a few extras.
Since FHA loans are government-insured and designed to provide safe housing, there are specific things that FHA appraisals must examine for the home to meet loan program guidelines.
When inspecting a property with FHA financing, either as a purchase or a refinance, there are areas that may need correction prior to the loan closing. According to HUD, to meet the FHA criteria, a property must be free of hazards that could affect the health or safety of the home’s occupants. A home may still be accepted if identified hazards are properly corrected. A lack of general maintenance or a run-down appearance is acceptable and won’t need to be repaired as long as it does not jeopardize the safety or structural integrity of the home. For example, damaged drywall, worn counter-tops, missing bathroom tiles, poor workmanship, and damaged or missing interior doors are all cosmetic issues. Structural defects that are not acceptable include cracks in the foundation, a sagging roof or floors, wood deteriorated to the point that it needs professional repair, or grading that is not adequate enough to drain water away from the house. A leaking or worn-out roof must be repaired or replaced. An appraiser must examine the condition of the roof from the attic to spot any holes in the roof or water staining.
Typically the most common repair for FHA appraiser inspections is the correction of chipping and peeling paint in homes built prior to 1978. Approximately three-quarters of the nation’s housing stock built before 1978 (approximately 64 million dwellings) contains some lead-based paint. When properly maintained and managed, this paint poses little risk. However, 1.7 million children have blood lead levels above safe limits, mostly due to exposure to lead-based paint hazards. Every Purchaser of any interest in residential real property on which a residential dwelling was built prior to 1978 is notified that such property may present exposure to lead from lead-based paint that may place young children at risk of developing lead poisoning. Lead poisoning in young children may produce permanent neurological damage, including learning disabilities, reduced intelligence quotient, behavioral problems, and impaired memory. Lead poisoning also poses a particular risk to pregnant women. So chipping/peeling paint is a major issue when the appraiser performs the inspection of a property. In an effort to correct all areas prior to inspections check interior and exterior painted surfaces: window trim, sills, frame, doors, thresh holds, walls and railings are some of the most common areas that have chipping and peeling paint due to the amount of usage and exposure to the elements. The typical verbiage in paint correction is “scrape,sand and paint any chipping and peeling paint”: all paint chips must be removed from corrected areas.
Let it be noted that on vacant homes some lenders may require evidence that the chipping paint was corrected per EPA guidelines.
An area on the outside of the home an appraiser would check is the roof. A check for missing and/or worn shingles would be visually noted. If the roof has a life expectancy of two years or less, the FHA appraiser will recommend that it be repaired or replaced. The FHA allows only three layers of roofing material. After there are more, the roof must be replaced when further repair is necessary.
Walk around the exterior of your home to look for conditions that might be deemed unsafe. Walkways should be in good repair and free of tripping hazards.
There are also FHA requirements for well and septic systems. Some homes have their own water supply, usually in the form of a well. But the FHA guidelines for wells is quite specific. For an FHA appraiser to pass your well, it must be at least 50 feet from your septic tank and at least 100 feet from the septic tank’s drain field. In addition, the well cannot be within 10 feet of your property line.
The bulk of FHA repairs are typically on the interior. Some suggested areas (in addition to the chipping/peeling paint if built prior to 1978) to pay particular attention for correction are water stains (indicating leak in need of repair), holes and large cracks. Look for evidence of rodents and termites. Turn on your heat and A/C systems to make sure they work, and that they don’t emit strong odors or smoke. Try all the light switches and power outlets to make sure they’re functioning. Remedy frayed or exposed wiring. Check your plumbing fixtures to make sure they all work and are free of leaks. Verify that your home has adequate water pressure–when more than one plumbing fixture is turned on, water should flow normally from each. Repair miscellaneous items the FHA considers health and safety deficiencies. These include missing handrails along stairways, broken windows and missing or unsafe stairways. Have a working smoke detector on every level. Make sure all windows open, remain open on their own and close. Verify that your garage door reverses or stops when it meets resistance.
All repairs noted from the appraiser are areas that are “readily observable”. The appraiser does not move furniture and notes only areas that can be seen upon inspection.
See the attached worksheet as an additional tool to help eliminate FHA repairs and further understand additional elements that need to be addressed in FHA appraisals.