FHA appraisals are an important part of the Federal Housing Administrations home loan program

They provide lenders with an objective view of a property's value and assess whether it meets the agency's minimum requirements for a loan. Knowing the five key points about FHA appraisals can help borrowers, sellers, and lenders ensure they know what to expect throughout the process.

The first key point to understand is that the FHA appraisal is not an inspection. An appraisal is a market analysis for determining a home's value based on comparable local sales data. The process does not involve an inspection of the property or its systems, and any findings made during the process, such as needed repairs, do not necessarily affect the outcome of the appraisal.

The second key point is that the appraisal will be conducted by a licensed appraiser who is approved by the FHA. The appraiser completes a comprehensive report of the property’s condition and safety, as well as its estimated market value. The report is then sent to the lender for review.

The third key point to remember is that the appraisal is not necessarily done in person. Depending on the appraiser's schedule, they may choose to conduct the appraisal remotely using virtual technology. This remote option was enabled to help streamline the appraisal process while still providing detailed information about the property.

The fourth key point is that the appraisal must meet the FHA's minimum property standards. This is to make sure the home is safe and secure, as well as to ensure it can be maintained over time. If the appraiser finds any issues with the property, the borrower may need to address the concerns before the loan can be approved.

The fifth key point is that the appraised value will need to be higher than the amount of the loan being requested. This is to ensure that the borrower will have some equity in the home upon taking out the loan. The appraised value becomes the maximum loan amount the borrower can receive, so if the value is lower than the loan amount requested, the borrower will need to make up the difference out-of-pocket.

In summary, FHA appraisals are instrumental in the loan process as they provide lenders with an accurate market value of a property and confirm that it meets the FHA's minimum requirements. Knowing the five key points about these appraisals, including the fact that they are not inspections, help borrowers, sellers, and lenders plan accordingly for the transaction. The appraisal must be conducted by a licensed appraiser and approved by the FHA, and the appraisal is sometimes done remotely. The appraised value must also be higher than the loan amount being requested and the property must meet the FHA's minimum property standards.

This article was contributed on Oct 17, 2023