While most lenders require an appraisal, mortgages insured by the Federal Housing Administration require a more extensive appraisal. The additional appraisal work required can help to protect both the interests of the FHA, which is insuring the loan, and the buyers.
Health, Safety and Soundness
The FHA's primary concern is that a house be safe and solid enough to last. Major issues, such as structural problems caused by a settling foundation, will need to be repaired before the FHA will guarantee the mortgage. FHA insurance also typically requires repair or replacement of roofs that are leaky or that are at the end of their useful life. For safety, the FHA also requires every bedroom to have an egress to the outside of the home.
Especially for houses built before 1978, peeling paint is a particularly significant safety concern, due to the risk of lead. While lead-based paint was outlawed starting in 1978, many houses built before then have paint containing lead, which can be dangerous to children if it is eaten. As long as any old paint is fully covered, the house will pass muster, but if it has any cracks, scales, flakes or is loose in any way, the loose paint needs to be sanded and scraped away and repainted with a modern paint. Furthermore, you have to do this regardless of the weather or time of year, in order for the loan to go through.
The FHA also requires appraisers to disclose other issues with a home. While these issues don't absolutely have to be fixed to meet the FHA's guidelines, lenders can choose to require repairs, if they feel it makes good underwriting sense. These issues cover a broad range and include worn out carpet, missing handrails, leaky faucets, cracked windows, and holes in walls in homes built after 1978.
The Appraisal Database
Every FHA appraisal gets entered in a database, whether or not a loan gets made on the property. Once the appraisal is in the database, it stays for six months. The problem with this is that if you get a low appraisal, you can't go to a different FHA lender and start over again with a different appraiser. Since your low appraisal is in the database, it will continue to influence the process.
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