A house appraisal is a necessary part of the loan application procedure for each and every kind of loan. No new buy loan and quite few refinance loan program recommendations allows for approval without one. FHA appraisers perform many of the same acts as appraisers for traditional loans, but with a few extras. Considering that FHA loans are government-insured and designed to provide safe housing, there are specific matters that an FHA appraiser must examine for the house to meet loan program guidelines.
FHA appraisers are a select group of experienced and licensed appraisers who have demonstrated their qualifications and ability. They have to undergo a procedure so as to develop into an FHA-approved appraiser. FHA appraisals remain with the home for three months after they are completed and enrolled, which means that all FHA loans applied for on this house for the next three months are based on the value set by the assessment. This shows the confidence that the FHA has in the abilities and ethics of its approved appraisers.
An FHA appraiser must establish the value of a house using three to five equal sales within one or two miles of the subject home. The sales must have taken place over the past six to 12 months. Adjustments are made to the comparable homes’ values so as to create parity between them and the subject residence. The appraiser uses these adjusted values to find out the market value of the house. The appraisal ensures that the residence is well worth the amount of the loan and that there is sufficient value in the house for the lender to recoup its losses in the event of foreclosure.
Besides setting the market value of the house, an FHA appraiser inspects the home to see whether it meets the minimum criteria set out by FHA guidelines. This really isn’t the same as an inspection. Prior to 2006, the guidelines had been much stricter, and the list of flaws in the FHA guidelines was considerably longer. The FHA pared the list to exclude most cosmetic defects.
The flaws that FHA appraisers notice are primarily health, safety and structural issues that could lead to serious harm or property loss. Cracking or peeling of lead-based water and paint discoloration are cosmetic issues that may indicate roof leaks or potential lead poisoning. Adequate, unobstructed entrance and exit to and out of the house allow for safe emergency evacuation. Outlets that are functioning and electric systems reduce the risk of fires. Important systems, such as pipes, heating and air, has to be operational. There ought to be no substantial roof or structural damage, which reduces the risk of collapse and property damage. Septic systems must operate correctly, to lessen sanitary health dangers. Poor drainage is an issue, as it can lead to damage to the base and structural integrity of the house.
In case an FHA appraiser finds some of these issues, he notes it on the appraisal. The FHA will not guarantee the loan until the seller handles and repairs those issues and the FHA appraiser re-examines the house for completion. Without the FHA warranty, lenders will not provide loan approval to a FHA loan. Does the appraised value remain with the house for three months, but the list of defects remains with the home as well. No lender will approve an FHA loan on this house for three months unless the repairs are completed.