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The FHA appraisal is a necessary process that can be mysterious to some potential FHA borrowers. What purpose does the FHA appraisal serve? It is not as complete as the optional (but critically important) home inspection, and the results of the appraisal should not be mistaken for a home inspection.

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FHA Loan Appraisal Basics

FHA Loan Appraisal Basics
April 10, 2017 - The FHA appraisal is a necessary process that can be mysterious to some potential FHA borrowers. What purpose does the FHA appraisal serve? It is not as complete as the optional (but critically important) home inspection, and the results of the appraisal should not be mistaken for a home inspection.

Also, the FHA appraisal (regardless of outcome) be considered as a stamp of approval on a home.

So what IS an appraisal? Ask an industry professional and you’ll learn that real estate appraisals should be considered a tool or a resource for the lender that helps establish the fair market value of the home. This in turn helps the lender determine the maximum loan amount.

Home inspections are meant specifically for the home buyer. The inspection is meant to be a more complete review of the condition of the home to help the buyer make an informed decision about buying the property.

Back to the appraisal process, HUD 4000.1 has instructions for how the FHA appraisal is to be done. “As the on-site representative for the Mortgagee, the Appraiser provides preliminary verification that a Property meets the Property Acceptability Criteria, which includes HUD’s Minimum Property Requirements (MPR) and Minimum Property Standards (MPS)...The Mortgagee must underwrite the completed appraisal report to determine if the Property provides sufficient collateral for the FHA-insured Mortgage.”

The property to be purchased is reviewed by an FHA appraiser, and its condition is compared to similar properties in the same housing market. From HUD 4000.1: “The Mortgagee must evaluate the appraisal in accordance with Defective Conditions to determine if the Property is eligible for an FHA-insured Mortgage. If defective conditions exist and correction is not feasible, the Mortgagee must reject the Property.”

What if defective conditions are detected? “When examination of a Property reveals noncompliance with the Property Acceptability Criteria, the Appraiser must note all repairs necessary to make the Property comply with HUD’s Property Acceptability Criteria, together with the estimated cost to cure.”

And in cases where the appraiser can’t make a determination that the property meets minimum standards? HUD 4000.1 states, “...the Mortgagee may obtain an inspection from a qualified Entity to make the determination.”

Even if an appraisal uncovers defective conditions, borrowers should know that does not automatically translate into finding ALL defective conditions or problems with the home. Even a very experienced appraiser might not spot some issues during the FHA appraisal process. Borrowers take note-the FHA appraisal is not intended for the buyer, and the appraisal is not intended to detect any potential problem with the home.

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