An appraiser assesses the value of the house you want to purchase before you apply for a mortgage loan. The Federal Housing Administration, or FHA, requires appraisals to determine if properties are eligible for FHA-insured mortgage loans. The FHA, an agency of the U.S. Department of Housing and Urban Development, insures mortgage loans made by FHA-approved lenders. Newly constructed houses must meet the FHA’s minimum property standards, or MPS. The FHA requires existing properties to meet the agency’s minimum property requirements, or MPR.
FHA Lenders and Appraisers
Your FHA-approved lender submits a form to request a property appraisal, after which the local HUD office assigns a case number and approves an appraisal assignment. The FHA maintains a roster of approved appraisers who meet the agency’s requirements. The FHA appraiser, who performs a thorough appraisal on behalf of the lender, completes the process and fills out the appropriate FHA appraisal reporting form. The appraiser details her findings, including the value of the property, analysis, deficiencies found, repairs required for MPR compliance, the cost of required repairs and, if necessary, inspection requirements. The FHA requires appraisers to focus on three elements of property eligibility when determining if the property meets the minimum property requirements.
Safety of the Property
The safety element of the MPR refers to the property’s habitability and the health and sanitary conditions. Safety includes the functioning of the home's mechanical systems, such as electrical, plumbing, heating and cooling. Appraisers look for systems that do not work properly or that are insufficient for the property. Safety hazards — such as missing handrails, lead paint and infestations — pose dangers that could affect your well-being and health. An unsafe property location has noxious odors, contaminants, excessive noise or other environmental conditions that make the home unlivable.
Soundness of the Property
The soundness element involves the structural components of the house. The appraiser will inspect the foundation, roof, walls and floors for poor construction or deterioration. Porches and patios can affect the structural integrity of the house, as can poor drainage and site problems that can damage the house. Appraisers also look for termite infestation, cracked masonry and weakness or damage in the framing of the house.
Security of the Property
Security refers to the risk posed by the house to the FHA insurance fund. The appraiser determines if the property, based partly on the safety and soundness elements, can serve as collateral for an FHA-insured mortgage loan. The home’s value and marketability, which is an important component of the security element, is affected by the deficiencies found in the home. External influences — such as special property assessments made by local governments, parking availability and ground rent — also affect the property’s marketability.
The FHA requires that appraisers include conditions for completed appraisals based on the existence of deficiencies. Appraisers submit the appraisals subject to the listed conditions. For instance, an appraisal may be submitted “As Is” with the notation that the appraiser has not listed repairs or conditions requiring correction or because the property is recommended for rejection. The appraisal may be submitted “Subject to the following Repairs or Alterations” or “Subject to the following Required Inspection.”
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