Competitive interest rates and modest credit and income standards make Federal Housing Administration-backed mortgage loans an appealing choice for home buyers. In fact, FHA-insured loans are the most common type used by buyers in some markets. Because the FHA has strict standards about the homes it invests in, it's wise to ensure that your house meets the guidelines before you list it for sale.
When a buyer applies for an FHA mortgage loan to purchase a home, the lender orders an appraisal by an FHA-approved fee appraiser. This appraisal goes beyond the typical estimate of market value; it includes an inspection to determine whether the home is safe, sound and worthy of the agency's investment.
The fee appraiser lists problems that need repair or replacement in a report he submits to the lender. The report notes which are necessary and which are merely suggestions. The FHA requires that the seller pay for the repairs the appraiser deems necessary; it won't allow you to reduce the price to compensate the buyer or escrow proceeds from the sale into a fund the buyer can use to make the repairs later. The loan can’t close unless the required work is complete.
FHA Exterior Requirements
The fee appraiser will assess your lot to make sure it's safe, functional and economically viable. One of the most important considerations in this regard is grading your yard so ground water flows away from your foundation. Installing new downspouts, if necessary, also assists with proper drainage. If you live in a very noisy area, consider installing fencing panels as a barrier to help absorb sound. Also, repair or rebuild outdoor stairs, walkways, patios and other walking surfaces that might pose a tripping hazard. And although your home doesn't have to have outdoor power receptacles, if it does have them, they must be functional and properly grounded.
Safety is the primary consideration for home interiors. Renovate surfaces with peeling paint. Repair or replace doors and windows that don’t open, close and lock properly. Update stairways with missing or damaged handrails and those that aren't properly lit. Replace your kitchen and bath electrical outlets with ground-fault-protected outlets. In addition, contact a repair technician if you're having problem with any appliance you'll include in the sale. Finally, unless your home has a flat roof, the fee appraiser must visually inspect the attic space. Cut a hole in the ceiling of a bedroom closet, if necessary, to allow an appraiser using a ladder to enter at least to her shoulders.
Roof and Basement
Your roof must be vented and in good repair, with no signs of leaks evident from a visual inspection of the exterior or from the visual inspection of the attic space. In addition, the the roof must have a life expectancy of at least three years. Consider replacing or repairing an older roof that isn't likely to last at least that long. Your basement or crawl space must be dry, too. If it’s not, you may need to install a vapor barrier, improve your lot drainage or seal your basement walls and floors.
Consider a Home Inspection
A professional home inspection helps you identify and fix problems that could jeopardize your sale. The inspector should evaluate your home's structure and its electrical, plumbing and heating/air-conditioning systems as well as its septic and well, if applicable. The inspector should be licensed and he should be familiar with FHA appraisal standards. Although the inspector's tasks overlap with the fee appraiser's, the fee appraiser's work is not considered an inspection, per se, and it's not meant to be as thorough as the true inspection a licensed home inspector conducts. Your buyer will order her own inspection -- yours simply helps you identify the work that needs to be done.
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