Essential FHA Appraisal Checklist

Buying a home is of course one of the most important life decisions a person can make. Making the transition from renting or perhaps living with your parents can be very exciting. 

If you’re new to the process, there is certainly a lot of information thrown at you, and steps in the home buying process. Educating yourself on homeownership is the best way to avoid costly mistakes and a stressful experience in general. 

FHA Loan Basics

As you look at all of your financing options for buying a home, securing an FHA loan is certainly something to consider. 

FHA loans are insured by the Federal Housing Administration, which is part of the U.S. Department of Housing and Urban Development. FHA loans are often a good fit for first-time home buyers or people with little savings or credit challenges.

You could qualify for an FHA loan even if you don’t meet the requirements for a conventional mortgage or if you had a bankruptcy.

• FHA loans allow down payments as low as 3.5% with a 580 FICO or 10% with a 500 FICO.
• The federal government insures FHA loans, but the loans are issued by private lenders.
• Mortgage insurance is required on all FHA loans, even if you put 20% down, but the amount and duration vary.
• The home must undergo an FHA appraisal and meet government standards for health and safety.

FHA Home Appraisal Requirements

The difference between an FHA appraisal and inspection than those required with a conventional loan? The main difference is the focus of the appraisal. Conventional appraisals are mainly focused on the condition and value of the property, while FHA appraisals emphasize the safety and security of the property on behalf of the buyer. 

For an FHA loan to be approved, the home must pass an FHA inspection and appraisal. That means it must be worth the purchase price and have such basics as electricity, drinkable water, adequate heat, a stable roof, fire exits and more. 

FHA Appraisal Checklist

Home Exterior

Inspect the foundation for cracks, water damage and other structural issues.
Check the roof for missing or damaged shingles that could cause water leakage.
Check walls for peeling paint, cracks or damage.
Inspect the windows and doors to ensure proper sealing, functioning locks and no broken glass.
Check if stairs and handrails are safe and stable.
Inspect driveways/walkways for cracks or tripping hazards.

Living Room

Check the walls and ceiling for cracks, peeling paint or moisture damage.
Make sure flooring is even, with no loose boards or other tripping hazards.
Confirm windows open/close easily, are properly sealed and are free of cracks.
Test if electrical outlets are functioning properly.
Verify that all light fixtures function properly.
Ensure proper placement and functionality of smoke/CO2 detectors, fire sprinklers and fire alarms.

Bedroom

Inspect the walls and ceilings for cracks, leaks or water damage.
Ensure all windows have proper locking mechanisms and sealing.
Check closets for proper shelving, doors and space usability.
Confirm all outlets and light fixtures work properly.
Inspect floors for tripping hazards or damage to flooring material.

Kitchen

Check for leaks under the sink.
Verify that major appliances such as the stove and refrigerator are working.
Inspect cabinets for loose hinges and signs of wear.
Ensure outlets are Ground Fault Circuit Interrupter (GFCI) protected and functioning.
Make sure the ventilation is working.

Bathroom

Check toilets for leaks around the base.
Verify sink drainage and ensure there is proper water pressure.
Inspect tubs and showers for proper drainage and water damage.
Confirm proper ventilation to avoid moisture buildup.
Ensure outlets are GFCI protected and working.

Attic & Basement

Check foundation and support beams for cracks, water intrusion or structural concerns.
Verify the insulation meets FHA energy standards.
Ensure adequate ventilation to prevent moisture buildup.
Check for exposed wiring or plumbing leaks.

General Health & Safety

Tests to see if smoke detectors are functioning properly and have fresh batteries.
Verify that key locations like hallways near bedrooms have carbon monoxide detectors installed.
Make sure that all stairs have handrails and non-slip treads and are in good condition.
Check for adequate lighting along stairways to prevent accidents.
Inspect for visible mold growth on walls, ceilings, and floors.
Inspect for signs of pest activity such as droppings, nests or damage to property.
Check for signs of termite activity, such as mud tubes, wood damage, or swarmer’s (winged termites).
Identify any areas with potential asbestos-containing materials, such as older insulation or floor tiles.

Accessibility

Ensure the property has easy access for pedestrians, emergency vehicles, and other vehicles in all weather conditions.
Check for ramps or elevators if the home is multi-story and assess their condition and safety.
Additional Hazards & Nuisances

How Can Both Buyers and Sellers Prepare for an FHA Appraisal?

Whether you’re going through conventional financing or FHA financing, it’s a great idea to get ahead of the appraisal process. The following are just a few important preparation steps both buyers and sellers can take before an FHA appraisal:

Sellers - thoroughly review HUD minimum property standards, making sure to address issues with home structure, roof, plumbing, heating and cooling, electrical and general safety.

Buyers - be aware of FHA guidelines and consider requesting that the seller make necessary repairs ahead of the appraisal. 

What If the Home Doesn’t Pass Appraisal?

To secure FHA financing for the property, someone will need to make the necessary repairs to the home. This could be the seller, the buyer, or occasionally the real estate agent. With a failed appraisal and without the necessary repairs to pass, you may need to consider alternative financing options to an FHA loan.

Why You Should Consider an Independent Inspection

Even though the FHA appraisal assesses the property for safety and livability, it typically doesn’t have the same depth and focus as a dedicated home inspection. An independent inspector can give a much more nuanced picture of a home’s true condition and potential challenges.

HUD strongly encourages home buyers to order an independent home inspection, separate from the inspection that your FHA appraiser will make. 

Remember that while independent inspection is encouraged, it isn’t required. However, you are required to sign a disclosure that states that you understand the importance of getting an independent home inspection.

Congratulations on this big step in life - buying a home! 

FHA loans can be a great choice for borrowers of all kinds. They’re especially popular with first-time home buyers because they make homeownership accessible for those who may not have a large down payment or have an imperfect credit history.

While the appraisal and inspection process of an FHA loan can seem somewhat complicated, it’s all to ensure safe and secure homes for you and other buyers. 

Remember to keep the experts in the loop. Real estate and mortgage professionals can be of great assistance in helping you through the process.