FHA loans, like most loans, require an appraisal before you receive loan approval. The home you buy (or refinance) is the collateral for the loan. If you don’t make your payments, the may foreclose on the property and sell it for the proceeds.
The appraisal determines the homes’ value and ensures it meets the FHA Minimum Property Requirements. In short, the FHA wants reassurance that the home is safe, sound, and sanitary and is worth enough to cover the loan amount along with your down payment before banks lend you money to buy it. The MPRs and value requirement protect you as the buyer, ensuring you aren’t buying a home that will cause financial difficulties.
Here’s what to expect with the FHA loan appraisals in Colorado.
FHA lenders request an FHA-approved appraiser to inspect the home inside and out. Appraisers determine a home’s value after looking at the home’s features and conditions and comparing it to recently sold homes in the area. Appraisers use homes similar to the subject property (the same model if possible) within a reasonable distance (usually 1 mile).
FHA appraisers also ensure the home meets the MPRs. The MPRs ensure the home is in good condition. This includes the structure, mechanical operations, appliances, water supply, sewage, and roof. The appraiser also looks for obvious hazards, such as mold, holes in the walls, damaged stairs, exposed wires, or a leaking roof.
The seller must address any issues the appraiser finds that violate the MPRs. If the seller won’t fix the issues, we’ll discuss your options.
Many buyers confuse the appraisal with the inspection – they aren’t the same thing, even with the in-depth detail the FHA appraisal provides. The FHA and most FHA lenders don’t require an inspection, but we all highly recommend it.
Borrowers pay for a home inspection at the time of service. On average, they cost $300 and give you a detailed report of the home’s condition beyond what the appraiser finds. The appraiser looks at the overall condition and operation of the home, finding obvious issues the seller must fix.
The inspector, who is a neutral third-party, looks closely at all details of the home’s operation. Inspectors provide a report detailing every issue with the home and potential issues it may face. The inspection report doesn’t affect your financing, but it may alter your buying decision or may prompt you to renegotiate the sales price or closing cost credits to cover the repair costs.
The FHA Appraisal also isn’t a pest inspection. The appraiser will notice obvious pest or termite damage and note it on the appraisal, which may prompt a pest inspection requirement, but without obvious damage, appraisers don’t look for pests or report them.
If you think the home has potential issues or know it’s in a pest-infested area, paying for a separate pest inspection can ease your mind, ensuring the home won’t need extensive repairs or treatments after you buy it.
Once all parties sign a sales contract and we submit it to the lender, they order the appraisal. Since the appraisal determines the loan’s outcome, they order it right away. The appraisal is a part of the buyer’s closing costs and costs an average of $500.
I have extensive experience working with FHA buyers and dealing with FHA appraisals. I’d be happy to answer any questions you have about the FHA appraisal process and how it works.Purchase Qualifier Refinance Rate Checker