Appraisals serve as a third-party evaluation of the home's value, helping to ensure that lenders and homebuyers are on the same page when it comes to the property’s worth. Without this evaluation, it can be difficult for a lender to accurately determine the value of the home before the loan is approved.
FHA appraisals are conducted by certified or licensed appraisers who assess the condition of the home and its features, taking into consideration the size, age, style, quality, and location of the dwelling as well as any necessary repairs or upgrades needed before the loan can be approved. The appraiser will also compare the home and its features to other similar homes in the area to make sure that the value assigned is accurate.
Any additional features like extra storage, outdoor space, and upgraded appliances can potentially increase the value of the home and should be noted by the appraiser during their assessment. In addition, the appraiser may take note of any negative aspects of the home such as plumbing or electrical problems, structural issues, and outdated fixtures.
While all FHA loans require an appraisal, there are some exceptions to this rule, including:
• FHA Streamline Refinance Loans - These loans allow homeowners to refinance their existing FHA loan into a new loan with a lower interest rate without the need for an appraisal.
• 203(k) Rehabilitation Loans - This type of loan allows buyers to purchase a home that requires repairs and renovations, and the cost of the improvements can be included in the mortgage loan. The appraiser will evaluate both the current condition of the home and the proposed project, but a full appraisal is not necessary.
• Energy Efficient Mortgages (EEMs) - Homeowners looking to make energy efficient improvements to their home may qualify for an EEM loan, which allows them to finance both the cost of the improvements and the cost of the loan itself in one lump sum. Due to the fact that the loan amount is based on the estimated value of the home after the improvements are completed, no appraisal is necessary.
In conclusion, an appraisal is a required part of the FHA loan process and is typically used to determine the value of the home. However, some FHA loans like those for streamline refinances, rehabilitation loans, and energy efficient mortgages do not require an appraisal, providing an easier and more affordable way for borrowers to secure financing for their home.
This article was contributed on Nov 03, 2023
