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It's important to know that FHA loan rules are not the only ones that may affect the outcome of an FHA appraisal. State law, building code, and other regulations may also apply. You should expect your transaction to be affected by more than one set of guidelines.

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FHA Home Loan Appraisals: Does The Basement Count?

FHA Home Loan Appraisals: Does The Basement Count?
May 3, 2018 - FHA home loan appraisals are an important part of the home loan process. Some buyers (and sellers) want to know what the appraisal process involves when it comes to basements-does the FHA have specific requirements for basements such as heat or insulation? Does the basement area even count as part of the total square footage in the eyes of the appraiser?

Before we proceed, it is very important to know that FHA loan rules are not the only ones that may affect the outcome of an FHA appraisal; state law, building code, and other regulations may also apply beyond what is written here; you should expect your transaction to be affected by more than one set of guidelines.

FHA loan rules for including the basement in the appraisal are found in HUD 4000.1, the FHA Single Family Loan handbook. It says that the appraiser must not, in general, include the basement is what is known as the Gross Living Area:

“Gross Living Area (GLA) refers to the total area of finished, above-grade residential space calculated by measuring the outside perimeter of the Structure. It includes only finished, habitable, above-grade living space.”

Additionally, “When any part of a finished level is below grade, the Appraiser must report all of that level as below-grade finished area, and report that space on a different line in the appraisal report, unless the market considers it to be Partially Below-Grade Habitable Space.”

Some areas in a home may be converted into living spaces-including garages. HUD 4000.1 says that in these cases, “The Appraiser must treat room additions and garage conversions as part of the GLA of the dwelling, provided that the addition or conversion space:
  • is accessible from the interior of the main dwelling in a functional manner;
  • has a permanent and sufficient heat source; and
  • was built in keeping with the design, appeal, and quality of construction of the main dwelling.
This portion of the FHA loan rules does not specifically reference basements, but we do find the following guidance for bedrooms that are partially “‘below grade”:

“Partially Below-Grade Habitable Space refers to living area constructed partially below grade, but has the full utility of GLA...The Appraiser must report the design and measurements of the subject, the market acceptance or preference, how the levels and areas of the dwelling are being calculated and compared, and the effect that this has on the analysis.”

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