Buying a Home
FHA Appraisals and Minimum Property Requirements
We’ve had several calls from buyers recently asking about certain homes and if they were approved for FHA financing. So we thought that this would be a good topic for a blog post.
For the most part, it takes an FHA appraiser to determine if a house does or does not qualify for FHA financing. But there is often some information on the multiple listing service (MLS) for agents to let them know if the listing agent doesn’t think a house will qualify for FHA financing because of the minimum property standards that FHA has set. In basic terms, FHA sets the following minimum standards:
- Safety: The home should protect the health and safety of the occupants.
- Security: The home should protect the security of the property (as explained in the previous section).
- Soundness: The property should not have physical deficiencies or conditions affecting its structural integrity.
Why does FHA set minimum property standards? When a borrower gets a loan to purchase a house, the property serves as collateral (the bank can and will foreclose on the property if the borrower stops making the mortgage payments). If that happens, the lender then sells the property to get back as much of the money they loaned as possible. Requiring minimum standards actually protects the lender because the property should be in better shape to sell if they have to foreclose. And it is good for the borrower because they are more likely to stay in the home and make payments if the house does meet certain livability standards. Also the buyers are not as likely to have expensive repair bills when they move into their new house.
FHA appraisals are different than appraisals for conventional loans and go further. FHA appraisers are watching out for the health and safety of the borrowers - basically they want to make sure that the home is livable. Utilities must be on for all FHA appraisals as the appraiser will check to make sure that all components are working: water, heater, electricity, natural gas, etc.
Some examples of health and safety issues that FHA appraisers are concerned about are: broken windows, the soundness of handrails at steps and evidence of rodent infestation. FHA appraisers must verify that all bedrooms have a way outside (not including a hallway) in case of a fire, windows and smoke detectors must work. They look at the condition of the roof, hot water heater and furnace. Kitchens must have a working stove.
If you are looking for a good lender, contact Pedersen Real Estate. We can refer one to you.