The New FHA: What You May Not Know About Appraisals

During the sellers’ market of the early 2000’s, FHA loans were the forgotten stepchild of the mortgage business.  No seller would even talk to a buyer approved through FHA or VA.  One big reason for that avoidance was the FHA appraisal and related property issues.  

All that has changed.

While an FHA approved appraiser must still be used, the rest of FHA’s appraisal requirements have been brought into parity with those of conventional loans.   Here are some key improvements:

• Pest reports:  No longer required.  Pest reports used to be an FHA fact of life, and every structure on the property—the broken down shed in the back forty included—had to be inspected.  The seller was required to fix or tear down that shed and repair all Section I & Section II inspection items.  Today, even if a pest report is written into the Contract as a condition of purchase, the lender will likely only ask for a letter signed by the buyer confirming that all conditions of the Contract have been met.  The only time a pest report will be required is when the appraisal calls for it.

• Well and Septic Reports:  No longer required.  This is often been an issue with foothill and rural properties, and when it pops it can kill deals.  If septic tanks needed repairs or the well didn’t pump enough water, the seller faced unforeseen costs and deals fell apart.  Not a problem anymore.
• Roof Certifications.  No longer required.  Again, this was an automatic on many FHA deals.  Today they are only required when the appraiser expresses concern about the roof.

Buyer Health and Safety

These are issues that now guide HUD’s appraisal and property requirements.  Rather than fuss over minor stuff that Fannie Mae and Freddie Mac don’t worry about, HUD is now primarily concerned with issues that might adversely affect the health and safety of the home owner and ultimately their ability to make payments. 

Sellers with homes built prior to 1978 that have cracking or peeling lead-based paint may still be asked to scrape and repaint the damaged area,. and you can’t be in the middle of replacing the deck and have a 6 foot drop to the back yard.  But overall, FHA appraisals and repair requirements are now no different than conventional loans.

So go for it!  Oh, and if your lender isn’t approved through HUD, be sure to give me a call. 

Questions? Comments?  Join the discussion and/or contact me.