Buying a house is a very complicated process. From mortgage applications and home inspections, there are many tasks you have to complete in order to purchase a home. Depending on what type of home loan you have, you may have additional requirements to complete to close your home. One example of this is an FHA loan. If you are getting an FHA loan, you will need to have a home appraisal completed by an FHA-approved appraiser.
At the Reichert Mortgage Team, a mortgage broker in Colorado Springs, we are experts at finding families the perfect FHA home loan. Our team has extensive experience working with our clients to provide them with the best mortgage solutions. At the Reichert Mortgage Team, we are proud to serve the Colorado Springs community to make your dream home a reality. As the best mortgage broker in southern Colorado, we are passionate about pairing families across the state of Colorado with the perfect FHA home loan for their new home.
If you are ready to begin your FHA loan process, and you want more information on FHA appraisals, FHA appraisal requirements, and the FHA appraisal process, keep reading!
What is an FHA Home Loan?
FHA loans are mortgages that are insured by the Federal Housing Administration (FHA). The FHA works under the Department of Housing and Urban Development (HUD).
FHA loans are a great option for many homebuyers. Unlike a conventional mortgage, an FHA mortgage offers more flexible requirements to borrowers, such as:
- Flexible credit score requirements
- Flexible income requirements
- Flexible down payment requirements
This makes FHA loans specifically attractive to first-time homebuyers and borrowers with lower income or credit scores.
FHA Loan Requirements
While FHA loans have more flexible requirements for borrowers, you still have to qualify for this type of loan.
The FHA sets the requirements for FHA home loans. To qualify for an FHA mortgage, borrowers have to meet a set of criteria including:
- Credit score requirements
- 2 years of employment history
- Minimum down payment requirements
- Must be purchasing a primary residence
- Income must meet front-end and back-end ratios
Another requirement to qualify for an FHA loan is a property appraisal. Property appraisals are incredibly important during your home buying journey. If you use an FHA loan to buy a home, the property must first be appraised by a HUD-approved appraiser.
Keep reading to learn more about FHA home appraisals and the appraisal process.
What is an FHA Appraisal?
An FHA appraisal has two goals. First, an FHA home appraisal works to provide an estimate of the current market value of the property. Secondly, the appraisal makes sure the property is safe for the homebuyer.
An FHA appraisal is completed by a HUD-approved appraiser who will determine the market value of the house. The appraiser will also complete a home inspection to ensure the property meets the minimum property standards set forth by HUD.
How Does an FHA Appraisal Work?
There are two main objectives during an FHA loan appraisal.
- The appraiser will look at the market value of the property.
- The appraiser will complete an inspection of the home.
During the appraisal process, the appraiser will look at comparable properties to ensure the property is worth the home’s value. This means that the HUD-approved appraiser will review recently sold properties in the area to make sure the loan-to-value ratio of the homebuyer’s mortgage is not more than what the value of the home is worth.
This stops loan lenders from loaning out more than what they want to risk. Also, this part of the appraisal process stops borrowers from taking out a loan for more than what the home is worth.
Secondly, an FHA appraisal will ensure the property meets the minimum property requirements set by HUD. The HUD-approved appraiser will look at the property’s condition for safety, including the exterior and interior of the home.
The appraiser will take photos to document the condition of the property, which will be used to complete an appraisal report for the property. This report will list the home’s market value and condition.
If the property fails to meet minimum property standards, the HUD-approved appraiser will document this in the appraisal report along with specific repairs and approximate costs to repair the property issues.
What Do FHA Appraisers Look For?
Along with completing market research of the property’s value, an FHA appraiser will look at the home to ensure it meets HUD’s minimum property standards. The goal is to make sure the home is safe, sound, and secure for the homebuyer.
This requires that the appraiser look at the home and inspect it closely. The FHA inspection will include the appraiser visually inspecting the property, taking external and internal photos of the property, as well as doing market research of comparable properties in the area to ensure the home meets market value.
The FHA appraiser will also inspect the roof, foundation, lot, ventilation, mechanical and HVAC systems, crawl spaces, and much more.
The objective of the FHA appraisal is to make sure the property is in good condition and that the health and safety of the homebuyer will be safeguarded.
FHA Loan Appraisal Guidelines
When using an FHA loan to purchase a home, an appraisal must be completed before the home can be purchased. The appraiser will perform an inspection of the home that includes looking at the home both externally and internally.
To pass an FHA appraisal, the home must meet HUD’s FHA appraisal property guidelines.
These guidelines outlined by HUD include:
- Must be a marketable property
- Have an adequate heating system
- Clear of lead paint
- No exposed electrical wiring
- Undamaged exterior walls
- No home hazards
- Quality home construction
- Adequate drainage
- Quality roof
- Safe access to the home
- Safe drinking water
- Natural ventilation in crawl spaces
- Proper utilities, such as gas, water, sewage, and electric
- Operational appliances
- Water heater functionality
- Access to the attic
FHA Appraisal Requirements
FHA appraisals are essential to make sure the property is in good condition to be bought. The appraiser looks at the home for safety hazards and any other conditions that could affect the health and safety of the homebuyer.
If the property fails to meet health and safety standards, the FHA-approved appraiser may fail the appraisal. This could be for many reasons, such as frayed electrical wiring, plumbing issues, or exposed floorboards.
How Much Does an FHA Appraisal Cost?
FHA appraisals are necessary when purchasing a home with an FHA loan. Appraisals are also essential to protect the homebuyer and maintain the health and safety of everyone living in the home.
An FHA appraisal is paid for by the homebuyer. The cost of an FHA appraisal will vary depending on a variety of factors, such as the square footage of the home, how far the appraiser will need to travel, and the amount of land the property is on.
Generally, home appraisals cost the homebuyer $300-$500. The FHA appraisal fee can be paid as part of your deposit with your loan lender, or the appraisal fee can be paid as part of your closing costs on the home.
What Happens After an FHA Appraisal?
After the appraisal is performed on the property, the approved appraiser will compile a report with findings.
The length of time it takes for the appraiser to publish an appraisal report varies depending on the state of the property as well as the size of the home. In general, the appraisal should come back after a few business days.
There are three main scenarios that could happen when an appraisal is completed. First, the appraisal could come back low, the appraiser could request further repairs on the property, or the appraisal could come back at the purchase price or higher.
Home Appraisal is Lower Than Offer
Remember that an FHA home appraisal protects homebuyers from borrowing more than what the home is worth.
For example, if you are buying a property and offered $500,000 but the appraisal comes back to say the price of the home is $450,000, your loan lender will not approve you for a loan more than the value of the home.
There are two options if a home appraisal is lower than the offer on the home.
- If the seller of the home wants to sell quickly, they may lower the price to the appraised amount. Otherwise, you and the seller will need to renegotiate to close the deal.
- If the property seller does not want to change the price of the property or is unwilling to come to an agreement with you, you may need to walk away from the property.
Home Needs Repairs After Appraisal
If the appraiser of the property comes back to say the home needs repairs, there are two options.
- First, the homebuyer can negotiate with the seller of the home to complete the repairs.
- If the seller does not want to complete the repairs, the homebuyer also has the option to pay for the repairs.
FHA Appraisal Higher Than Purchase Price
In the case where the FHA home appraisal is more than the purchase price of the home, you are in the clear! This is the best-case scenario for homebuyers.
You will move forward with the home buying process as normal.
Buy the Home of Your Dreams With an FHA Loan From the Reichert Mortgage Team
Buying a house is a lengthy and stressful process. Many requirements need to be completed before closing on a home, especially if you have an FHA home loan. An FHA loan is a great choice for homebuyers due to the flexible requirements of the mortgage. If you are thinking of borrowing an FHA loan, keep in mind that this loan requires homebuyers to complete a home appraisal of the property. This ensures the home is safe and meets the minimum property standards set forth by the Department of Housing and Urban Development.
At the Reichert Mortgage Team, we are proud to serve Colorado Springs as the best mortgage broker. We work with our clients to pair them with an FHA loan for the home of their dreams. With our knowledgeable team working by your side, the Reichert Mortgage Team is here to answer any questions you have about FHA home loans, home appraisals, and the FHA appraisal process. To learn if you qualify for an FHA loan, or if you have other questions about home mortgages or appraisals, contact the Reichert Mortgage Team!