In all cases in which a mortgage loan is used to purchase a home, a lender will require an appraisal of the home. Appraisals are used by lenders to determine a property’s value and to help protect the lender’s investment as well as that of the homebuyer. Home appraisals differ based on the type of financing used for the home, including appraisals related to a conventional mortgage loan and those which are part of securing a mortgage from the FHA (Federal Housing Administration).
Conventional Mortgage Appraisals
Mortgage loans issued by private lenders such as banks and credit unions are called “conventional loans.” The appraisals used for conventional mortgages are typically focused on the value of the home and property being appraised, particularly giving consideration to the home’s condition, its location and its features.
FHA Mortgage Appraisals
Since the FHA insures mortgages on behalf of eligible borrowers, it also requires appraisals, and FHA home appraisals are somewhat distinct. A key consideration of FHA appraisals is that everything in a home functions as it was intended to. For example, a door that is meant to lock should lock. Beyond functionality, FHA appraisals aim to verify that a home financed with an FHA mortgage is safe and secure for its occupants.
What an FHA Appraiser Looks for During an Inspection
An FHA appraisal will point out specific details about any dwelling; however, due to the unique characteristics of each home, there could be items which may be subject to the appraiser’s personal assessment. Overall, beside determining that everything works as it should, FHA appraisals will point out any potential safety or health concerns, as well as any questions about the marketability of the home. Here is a representative list* of what an FHA appraiser must inspect during the appraisal of the home:
- Utilities turned on to test the systems and appliances for functionality
- Proper drainage around the perimeter of the home
- Adequate water pressure and testing of both hot and cold water
- Water heater in working order and up to local code
- Attic with vents, no damage, no exposed or frayed wires, no sunlight beaming through
- Crawlspaces with no signs of standing water or defects related to the building’s foundation
- No chipping, peeling or flaking paint on homes built before 1978 for danger of lead-based paint
- No defective paint or bare wood for homes built after 1978
- Electrical outlets in working condition with cover plates
- Active termite infections addressed and cured
- Windows which open and close with no broken panes
- No dangling wires from missing fixtures
- Smoke and carbon monoxide detectors present and up to local code
- Firewall from the garage to the home intact
- Roof not leaking and with at least two years of economic life left. (The FHA will not accept roofs with over three layers of existing roofing.)
FHA standards are rather straightforward, but there may be instances when appraisers must use their best judgment in how the spirit of FHA might apply. A home will be rejected if the site is subject to hazards, environmental contaminants or excessive noxious odors or noises which could affect the safety and livability of the property.
Any conditions that the appraisal deems unfit for FHA financing must be repaired prior to closing.
For more information about differences in loan types and other topics related to home buying and financing, download our free Mortgage 101 Handbook.
*This is a general list and does not include all aspects of the home and property an appraiser must inspect.