When a homeowner wants a standard refinance with FHA, he will be required to get an appraisal done on the property. Before a property can be approved for any FHA loan, whether it is a refinance or a standard 203b, it has to meet the FHA appraisal requirements. There are a couple of different reasons for the appraisal. The first is to ensure the safety of the structure; nobody wants to have a loan or insure a loan for a property that is going to drop in value due to structural issues, and nobody wants to live in a home that may not be safe. A second reason for the specific FHA requirements is to make sure that the home can resale if the loan is defaulted on. When a 203b loan is acquired through the FHA, whether it is a new loan or a refinance of an existing loan, the home will become the property of HUD if a foreclosure becomes necessary. As with any investor, owning a home that will not resale is a waste of money, time, and energy, so the FHA makes sure up front that the home will retain its value.
The Basics of the FHA Appraisal Requirements
When an appraiser walks onto the property he is going to start by looking at the foundation. He is looking for anything that could be a potential issue, both from the exterior and the interior. Foundation issues include:
- Cracked or damaged windows
- Doors that do not fit in their cases or that shift unnaturally
- Evidence of Foundation Failure (huge cracks, sagging walls or corners, or leaning structures)
- Signs that may indicate a previous attempt at foundation repair
- Gutters and down spots that don’t function adequately.
The appraiser will check for additional structural issues by inspecting the attics, basements, and crawl spaces. In these areas the FHA appraisal requirements state that there must be proper ventilation, proper sizing of the areas (the attic and crawl spaces must be big enough to allow for proper maintenance), very little or no damage, and no water or damp areas that could indicate a roof or plumbing issue.
Once the structure of the home has been established the appraiser will move on to the electrical and plumbing components of the home. First, he will make sure the electrical panel can handle the electronic demands of the home. If the appliances were recently updated, he will make sure the electrical panel was updated to handle the additional demands of the new appliances. He will also check for any issues with the wiring as this can be a large concern for safety.
On the interior of the home he will check to make sure the room has an adequate number of outlets. He will go over the appliances to check that each one is working properly. He will also check the heating and cooling for each room as well as the plumbing to make sure it is functioning as it should through all plumbing fixtures.
The appraiser will also inspect the paint and windows of the home, particularly if the home was built in the late 70’s. It wasn’t uncommon for builders to use lead paint, so FHA appraisers do pay special attention to the paint to ensure that it isn’t going to be putting off any toxins into the home. While he’s at it he will also inspect for other paint issues such as peeling or chipping. For the windows he will be looking for bars and window wells; it’s his job to ensure the safety so anybody living in these rooms will need to have quick access out if a fire should occur.
The appraiser will also look at the roof and location of the home. The roof has to be in good repair, or must be estimated to last for at least two years. The home must also not have any hazardous materials on site, and its location must be a reasonable distance from safety hazards. At this time the appraiser will look for any additional issues such as excessive noise, offensive odors, utility lines, abandoned wells, and sometimes even standing water.
What You Can Do Before you Refinance with FHA
To make sure you pass the FHA appraisal requirements you will want to pay attention to those things that are listed above, as well as anything that you think may present a health risk. Try to look at the home the way the appraiser will. Find and repair as many flaws in the foundation as you can, tighten doors and windows, repair missing shingles on the roof, do a thorough sweep of the basement to check for water damage. Keep in mind that the repairs you do must repair the problem; they can’t be quick fixes or half-baked attempts at a repair. If you have a major issue, take the time to hire a professional to get the job done right. It’s not difficult to get a repair done, but if you fail the appraisal it will delay approval on the loan, so you’re better off doing it right the first time.