How to Prepare for an FHA Inspection and Appraisal

If you plan on buying a new home with an FHA loan, it is important that you are familiar with FHA inspection and appraisal requirements. For a Federal Housing Administration (FHA) loan to be approved, the home must pass an FHA inspection and appraisal. That means it must be worth the purchase price and have such basics as electricity, drinkable water, adequate heat, a stable roof, fire exits and more. This guide will provide an FHA inspection checklist and walk you through the whole process, so you know what to expect.

If you’re preparing for major financial decisions in your life, such as buying a home, consider working with a financial advisor who can help with the process.

What Is an FHA Inspection and Appraisal?

Typically, a mortgage lender requires an appraisal of the true value of the home being purchased. This is to ensure the home is worth the selling price.

For an FHA loan, this is a requirement by the U.S. Department of Housing and Urban Development (HUD), as well as an inspection of the home’s condition. In order to pass inspection, the home must meet minimum safety, security and soundness standards.

An FHA inspection is conducted by a licensed, HUD-approved property appraiser. Generally speaking, the home must reasonably protect the safety and health of its occupants and adequately support the protection of their property. In addition, its structural integrity cannot be in danger of being compromised.

The inspector determines whether the property meets these standards and reports it on an FHA form. For detached single-family homes, the inspector uses the Uniform Residential Appraisal report. Here, the inspector also lists whether any particular issues must be remedied for the loan to qualify.

As far as the appraisal of the home’s value, HUD-approved inspectors follow the traditional process . They compare the house to similar property that has sold recently in the area. However, health and safety concerns are the most important part of the process here, as far as the FHA and HUD are concerned.

Once this process is complete, the inspector sends a form to the lender for further evaluation. After the lender gives its approval, the FHA loan moves forward.

However, if the inspector finds problems, they need to be addressed before the bank can approve the loan. That is why it helps to know what the inspector looks for so you can help expedite the loan process.

FHA vs. Conventional Appraisal: What’s the Difference?

An FHA appraisal checks both the value and the condition of the property to ensure it meets specific safety and livability standards set by the U.S. Department of Housing and Urban Development (HUD). In contrast, a conventional home appraisal focuses mainly on determining the market value of the home. This means FHA appraisers must inspect more aspects of the property, including the roof, heating system and overall safety features.

Conventional loans do not require the same level of inspection. A home may pass a conventional appraisal even if it has some minor defects or maintenance issues. FHA loans, however, may require repairs to be completed before the loan can close. This makes FHA appraisals more strict, especially for older homes or those in need of updates.

Because of the stricter guidelines, some sellers prefer buyers using conventional loans to avoid dealing with repair requests or delays. Buyers using FHA loans should be aware that the appraisal could reveal conditions that must be fixed, either by the seller or at the buyer’s expense. It is important to factor this into both the budget and negotiation strategy.

If you are unsure which type of mortgage is best for your situation, consider how much money you can put down, your credit profile and whether you are willing to buy a home needing repairs. A real estate agent or lender can help you decide which appraisal and loan process fits your goals.

FHA Inspection Checklist: What Does an Appraiser Look For?

An inspector examining the beams of a house.

An FHA appraiser goes through the house while documenting its structure and other key details, such as its layout. They also keep an eye out for particular hazards, such as these, that must be handled before an FHA loan will be approved on the property.

Roofing

The roof must be sturdy enough to reasonably last two to three years, and it must keep moisture out. In addition, the roof cannot have more than three layers. If it does and the appraiser finds enough damage, they could require a new roof.

Structure Quality

The overall structure of the property must be in good enough condition to keep its occupants safe. This means severe structural damage, leakage, dampness, decay or termite damage can cause the property to fail inspection. In such a case, repairs must be made in order for the FHA loan to move forward.

Heating, Water and Electric

Each inhabitable room must have an adequate heating source. However, certain exceptions apply in areas that experience mild winters. In addition, the water heater must adhere to local building codes. Furthermore, electric boxes cannot have damaged or exposed wires.

Safety Hazards

An appraiser inspects the property for potential safety hazards, such as asbestos. In the event that the inspector finds asbestos that may be damaged, an asbestos expert must conduct another examination. Some hazards are not obvious, such as contaminated soil.

Location

The property may not pass inspection if it sits in an area that is too noisy or within proximity to a hazardous waste site, as defined by the federal government. We list a few area-specific nuisances that may prevent a home from passing FHA inspection:

Heavy traffic
Proximity to an airport, high-voltage power lines, radio or TV transmission towers
Relation to a high-pressure petroleum line and other sites with potential for explosion
Proximity to different sources of excessive noise
Oil and gas sources on property

Access

To pass inspection, the home must provide access to pedestrians and vehicles, particularly emergency vehicles. These must be able to access the home under all weather conditions.

This is an overview of what issues an FHA inspector looks for. For a complete guide, access the Department of Housing and Urban Development’s Homeownership Center (HOC) Reference Guide.

What Defects Will the FHA Overlook?

FHA safety requirements may seem excessive, but keep in mind many of these issues can be resolved fairly quickly. In addition, the FHA does not place too much emphasis on minor cosmetic defects, delayed maintenance and normal wear-and-tear. As long as it is not reasonably detrimental to safety, security and soundness, it will likely pass inspection.

Such cases can include:

Damaged or cracked windows, doors, counter tops and other features that are still operable and functioning
Missing handrails
Poor workmanship
Worn floor finishes
Deficient paint surfaces in homes completed after 1978 (homes built earlier may pose lead hazards)

What Can I Do If a Home Doesn’t Pass FHA Inspection?

The first step to take if a home does not pass inspection is to figure out why. It is most likely something that can be rectified. Maybe the seller needs to repair something with the heating or electrical system. If extensive, the seller may want to raise the purchase price in order to cover necessary repairs.

However, if a structure fails inspection due to serious damage, it may be best for all concerned if the homeowner sells to a buyer without FHA financing. If you are the buyer, you will have to continue house hunting. You could also take a step back and work on repairing your credit score before continuing the search so you qualify for a conventional mortgage. This will also help you secure a favorable mortgage rate.

Bottom Line

A family standing together in front of their new home.

Before buying a home with a HUD loan, make sure you are familiar with FHA inspection and appraisal requirements. A HUD-approved appraiser conducts an FHA inspection to ensure the property is safe, secure and sturdy enough to live in. The requirements are baseline safety issues, though. To protect your investment in a more certain capacity, you should get a separate home inspection and make the sales contract contingent on the results. If the home does not pass the FHA inspection and the seller does not want to make the needed repairs, the prospective buyer should move on and continue searching for their dream home.

Tips for Homebuyers

Financing your dream home can be a challenge, but a financial advisor can help. Finding the right financial advisor that fits your needs doesn’t have to be hard. SmartAsset’s free tool matches you with vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
Don’t forget that your mortgage is just a part of your overall home-buying costs. You also need to calculate factors like local property taxes and home owner’s insurance. Use our interactive mortgage calculator to get a clearer picture of how much you’ll truly spend to own your home.
If the house you want doesn’t pass FHA inspection, you can clean up your credit score to get a conventional mortgage with the best rates. Make sure you always compare mortgage rates no matter what type of loan you take out.