If you buy a home with an FHA loan, you will need to acquire an FHA appraisal. The FHA appraisal is different from a standard appraisal in several ways. It comes with stricter requirements, because FHA home loans are backed by the government, and the government wants to make sure that you get a safe place to live, and that it (and taxpayers) back safe, livable homes.
Definition of FHA Appraisal
The Federal Housing Administration (FHA) is a government agency that provides insurance for loans granted by FHA-approved lenders throughout the US. The FHA insures banks that provide loans to borrowers with low down payments, usually 3.5%–5%, and competitive interest rates. The FHA sets the guidelines for the various types of loans it makes available to borrowers. As part of their monthly loan payments, borrowers must pay a mortgage insurance premium that goes to the FHA. If a borrower defaults on a loan and the lender has to foreclose on the home, the FHA will provide loan funding to the lender through these public mortgage insurance premiums paid by borrowers.
When an FHA loan is being used, the appraiser has two objectives. The Department of Housing and Urban Development (HUD) requires him to determine the current market value, as with any appraisal. But they also require a property inspection to make sure the home meets HUD’s minimum standards for health and safety.
The Federal Housing Administration offers mortgage financing to homeowners with just 3.5% percent down. The down payment, and even the closing costs, can come in the form of a cash gift, approved down payment assistance program, or an approved loan. This essentially makes the FHA loan a zero-down mortgage if you play your cards right.
While many lenders require higher credit scores, home buyers with scores as low as 580 can qualify for FHA financing. This is due to their lower down payment requirements, higher debt ratio allowances and more relaxed credit standards.
Different Loan Programs Require Different Appraisals
Almost every mortgage program requires an appraisal for a property purchase. Lenders work with our Expert appraisers to determine a home’s value. This is one way lenders protect their investment in your house.
It’s important to note, when it comes to FHA home appraisals, one size does not fit all.
If you apply for a VA home loan, for instance, you use a VA-certified appraiser for your VA mortgage appraisal. Not only must the appraiser be certified by the VA, the appraisal ordering process is entirely different for your lender, and often takes longer than other standard appraisals.
If you use FHA financing, you will need an FHA appraisal. This means a HUD-approved home appraiser must inspect and appraise the property. It should be noted that different geographic locations can create different requirements for FHA appraisals. For example, if the property is in an area known to have water problems, you may have to get a well test.
How FHA Appraisals Are Different than standard Home Appraisals
FHA mortgages make it easier for homebuyers to purchase a home. As such, it’s helpful to understand FHA appraisal requirements. The Department of Housing and Urban Development (HUD) created minimum property standards that FHA appraisers must consider. These areas include safety, security & soundness.
This makes the FHA appraisal more expensive, but provides more protection for the homebuyer. The basic concept of meeting FHA minimum requirements is that everything in the home must work as it was designed to work.
FHA appraisal guidelines include detailed instructions for inspecting the property, which is different from a standard appraisal. However, the FHA appraisal itself is not an inspection. The FHA strongly urges homebuyers to get a home inspection before purchasing property for their own protection. FHA discloses that it does not guarantee the condition of the property.
At Hudson View, our Expert Appraisers are well-versed in the requirements & nuances of the FHA appraisal system.
If you would like to learn more, please visit the FAQs section, or contact us today to Get Started. Or visit us on LinkedIn. Use our services for managing your appraisal needs in the New York & Connecticut areas.
Hudson View Appraisal Services has many years of experience in the business, we have a proven track record of reducing lenders aggravations, efforts, and costs in managing the appraisal process.