FHA Appraisal: Guidelines and How It Works

If you’re applying for a mortgage backed by the Federal Housing Administration (FHA), the lender will in most cases require an FHA appraisal to verify the value and condition of the home you’re buying or refinancing. FHA appraisal guidelines tend to be more stringent than conventional appraisal rules, and they’re designed to ensure the home is “safe, sound and secure.” Here’s what to know about the appraisal process for FHA loans.

Key takeaways

• FHA appraisals focus on the property’s market value, condition and overall livability.
• If your appraisal comes in low, you can try negotiating the price with the seller.
• FHA appraisal reports are valid for 180 days.

What is an FHA appraisal?

An FHA appraisal is a written report that assesses a home’s value and condition based on FHA guidelines. Only an FHA-approved appraiser can complete this type of appraisal, which requires a more detailed analysis and inspection than a conventional appraisal.

In most cases, an FHA appraisal is required if you’re buying or refinancing a home with an FHA loan.

When do you need an FHA appraisal?

Lenders require an FHA appraisal for the following types of FHA loans:

• FHA purchase. Unlike conventional purchase loans, there is no appraisal waiver option if you buy a home with an FHA loan.
• FHA cash-out refinance. An appraisal is required if you’re borrowing more than you currently owe with an FHA cash-out refinance.
• FHA 203(k). The FHA 203(k) loan is a renovation loan, and an appraisal is required to estimate the home’s value after improvements are finished.
• Reverse mortgage. The FHA home equity conversion mortgage (HECM) — commonly known as a reverse mortgage — is a specialized loan for borrowers of at least 62 years of age. The program requires an appraisal to determine how much equity a senior homeowner can access.

There is one FHA loan type that doesn’t require an FHA appraisal:

• FHA streamline refinance. You won’t need an FHA appraisal or income documents to qualify for an FHA streamline refinance if you’ve paid your current FHA loan on time in the past 12 months.

How an FHA appraisal works

To get an FHA loan, homebuyers must choose an FHA-approved lender. As part of the FHA loan application process, the mortgage lender will order a home appraisal from an FHA-approved professional appraiser.

The hired appraiser thoroughly inspects the property and gathers information about similar sales near the home being financed. The report includes photos of the home and an estimate of the home’s value. It must state whether the home meets the Property Acceptability Criteria set by the U.S. Department of Housing and Urban Development (HUD), including Minimum Property Requirements and Minimum Property Standards. If the property doesn’t meet the criteria, the appraiser will suggest repairs that improve the property to FHA standards.

Both you and the lender receive a copy of the FHA appraisal, which is valid for 180 days. It’s up to the lender to approve, conditionally approve or reject the property. A conditional approval requires repairs to be made.

How much does an FHA appraisal cost?

FHA appraisals usually cost between $400 and $700, and the price varies based on the home’s size, property type, location and features. In most cases, the cost of the appraisal is paid by the buyer as part of the loan’s closing costs.

FHA appraisal requirements

There are two parts to the FHA appraisal process: market research and the inspection. The purpose is to make sure the home’s value is high enough to approve your mortgage, and that the home meets all the FHA guidelines for safety and livability.

Market research

During this stage, the appraiser determines the stability of home prices in the area. They must cite several sources, including:

• At least three closed comparable sales
• If the property is located in a condominium complex or subdivision, recently closed sales within the same property subdivision (if possible)
• Two active listings or pending sales if the property is located in a “declining market”

Inspection

The appraiser will come to the property to assess its condition (read on for specific factors they look at).

FHA appraisal checklist

During the inspection, an FHA appraiser will search for “red flags” that can affect the health and safety of the home’s occupants.

They will want to see the following as evidence that there are no FHA appraisal red flags in the categories below:

The physical structure of the building

 No damage to the home’s exterior, foundation and roof

 No sign of insect infestation

 No loose wiring or exposed electrical systems

 Adequate ventilation of attics and crawl spaces

The livability of the building

 Working utilities, including electricity, heat and clean water

 Safe and sanitary sewage disposal

 No lead paint

 All applicable safety standards are met

The property site

 No soil contaminants or leakage from underground storage tanks

 Topography drains water away from the foundation

 Safe and reasonable property access for vehicles and pedestrians

What to do when your FHA appraisal is complete

When your appraisal comes back, you’ll want to review two items:

The home’s estimated value.

If you’re buying a house, the appraised value tells you whether or not the value matches the purchase price you agreed to.

What to do if your appraisal comes back low

If the appraisal is lower than expected, you can negotiate with the seller to lower the price, put more money down to cover the difference or cancel the contract.

The property condition status.

The appraiser will assess the value based on an “as-is” or “subject-to” status.

• As-is value. This means no repairs or inspections are required.
• Subject to repairs or alterations. The repairs must be completed for you to complete your loan.
• Subject to required inspections. The appraiser may require a qualified inspection if they observe safety, soundness or security issues they don’t have the expertise to make suggestions on.