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So youve just signed the sales agreement on your new FHA-approved home. While congratulations are in order, youre not out of the woods yet.
The Federal Housing Administration (FHA) requires your property to undergo an appraisal before closing. In addition to assigning a value to your home, this FHA appraisal ensures your home is safe, sound, and secure.
An FHA mortgage is a government-backed loan that offers low-down payment home financing to people who otherwise may not qualify for a conventional mortgage.
The FHA appraisal, which is completed before closing, reviews the home in two key ways. A regular appraisal is simply looking at the value of the property, [but] FHA appraisals also check to make sure the home is habitable and safe, says Nick Gromicko, founder of the International Association of Certified Home Inspectors.
But these types of appraisals werent always required. FHA and HUD realized the importance of home inspections after many homes were thrown into foreclosure because the new owners didnt have any money to repair major deficiencies. They had put every penny they had into the downpayment, but because they didnt get a home inspection, they didnt realize that the furnace didnt work or the roof leaked, says Frank Lesh, ambassador at the American Society of Home Inspectors
Appraisals and home inspections are typically two different processes. During a conventional home-buying experience, the lender sends one of its approved appraisers to formally evaluate the homes value based on the size and structure of the home. And a buyer can order an optional home inspection from their choice of contractor to look at the roof, plumbing, HVAC, termites, and other potential issues.
What makes an FHA appraisal different is that it requires a home inspection element. An FHA inspection is a peek at what its going to be like to actually live there, says Gromicko. FHA inspectors make sure the house is sound, that it doesnt have water intrusion issues, that the appliances function, that it doesnt appear to have any environmental issues like mold or asbestos, that the windows and receptacles function, and that it isnt infested with rodents or wood-destroying organisms.
And unlike a typical appraisal or inspection, the FHA will require any repairs to be completed for the sale to go through.
The FHA appraisal occurs after the sales agreement is signed by both parties and before closing. The appraiser is chosen by the lender and paid for by the borrower. The cost typically ranges from $312 to $404, according to HomeAdvisor, a platform that connects homeowners with plumbers, painters, electricians, and other home contractors.
FHA appraisals require a walkthrough of the home to make sure the minimum property requirements are met, in accordance with HUDs Single-Family Housing Policy Handbook. An appraiser will look at any visible damage to the home and its structure, but typically arent as thorough as a licensed home inspector.
Even though an FHA appraisal has aspects similar to a home inspection, HUD recommends that people hire a licensed home inspector to conduct a separate home inspection before closing.
The appraiser will take photos of the property and fill out reports needed to complete the home-buying process. If any defects are found, youll receive a list of needed repairs. If the seller wants to keep the deal from falling apart, the seller has the obligation of fixing anything FHA wants to have repaired, says Gromicko. This is slightly different than a conventional real estate deal where the seller and buyer negotiate over issues and repairs. Theres no negotiating with the FHA.
Alternatives to the seller having sole responsibility of repairs include:
The appraiser will look for potential damage and hazards to the home and the homeowner.
The federal government has numerous regulations and protocols that have to be adhered to during this process. And those regulations are in a constant state of flux, says Lesh. Be sure your inspector, appraiser and lender are all up to date on those regulations.
Defective conditions include:
An appraiser will note and may order another inspection for the following conditions:
Any defects found will need to be corrected by the seller. If the property is in tip-top shape, you should be able to move into closing quickly after the appraisal.
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