FHA loans have stricter guidelines then conventional loans when it comes to the appraisal process. The house will be inspected by a HUD-approved home appraiser, who will determine the current market value of the property, and will also inspect it to ensure it meets HUD’s minimum property standards.
In order for a house to meet the minimum property standards, the house:
- Must have an undamaged exterior, foundation and roof
- Must have safe and reasonable property access
- Must not contain loose wiring and exposed electrical systems
- Must have all relevant local utility hookups, including gas, electricity, water and sewage
- Must be free from damaged underground storage tanks and soil contaminants
- Must have a working heating system that can heat the property adequately
- Must have surfaces free of chipping or peeling lead-based paint
- Must have adequate access to attic spaces and natural ventilation in crawl spaces
- Must have access to clean water
- Must be free from wood destroying insect infestations
- Must have working utilities, such as water and heat
- Must not have interior and exterior health and safety hazards, such as no handrails on steep staircases
- Must be a marketable property
If the house fails to meet these standards, the seller must conduct the necessary repairs in order for the loan to proceed. The appraisal will also help determine the market value of the home. By correcting the deficiencies noted on the appraisal, the homeowner may increase the value enough so that the buyer can qualify for the loan amount. Otherwise, the seller may have to lower the sales price, or the buyer may apply for a smaller loan and put more cash down to meet the sellers asking price.