EAG - FHA

FHA and the Appraiser: In a nutshell

Many people are confused as to what role the appraiser plays within an FHA mortgage. Below are excerpts from HUD documents to help explain:

From the Home Buyer Protection Plan (HUD-92564-CN)

What the FHA Does for Buyers...

and What We Don't Do

What we do: FHA helps people become homeowners by insuring mortgages for lenders. This allows lenders to offer mortgages to first-time buyers and others who may not qualify for conventional loans. Because the FHA insures the loan for the lender, the buyer pays only a very low down-payment.

What we don't do: FHA does not guarantee the value or condition of your potential new home. If you find problems with your new home after closing, we can not give or lend you money for repairs, and we can not buy the home back from you.

That's why it's so important for you, the buyer, to get an independent home inspection. Ask a qualified home inspector to inspect your potential new home and give you the information you need to make a wise decision.

Appraisals and Home Inspections are Different

As part of our job insuring the loan, we require that the lender conduct an FHA appraisal. An appraisal is different from a home inspection. Appraisals are for lenders; home inspections are for buyers. The lender does an appraisal for three reasons:

· to estimate the value of a house

· to make sure that the house meets FHA minimum property standards

· to make sure that the house is marketable

Appraisals are not home inspections.

Why a Buyer Needs a Home Inspection

A home inspection gives the buyer more detailed information than an appraisal--information you need to make a wise decision. In a home inspection, a qualified inspector takes an in-depth, unbiased look at your potential new home to:

· evaluate the physical condition: structure, construction, and mechanical systems

· identify items that need to be repaired or replaced

· estimate the remaining useful life of the major systems, equipment, structure, and finishes

What Goes into a Home Inspection

A home inspection gives the buyer an impartial, physical evaluation of the overall condition of the home and items that need to be repaired or replaced. The inspection gives a detailed report on the condition of the structural components, exterior, roofing, plumbing, electrical, heating, insulation and ventilation, air conditioning, and interiors.

Be an Informed Buyer

It is your responsibility to be an informed buyer. Be sure that what you buy is satisfactory in every respect. You have the right to carefully examine your potential new home with a qualified home inspector. You may arrange to do so before signing your contract, or may do so after signing the contract as long as your contract states that the sale of the home depends on the inspection.

From the HUD Valuation Analysis for Home Mortgage Insurance (Handbook 4150.2)

"Appraisals performed for HUD/FHA are not intended to protect the buyer: they protect HUD. Many homeowners mistakenly believe that a HUD appraisal and subsequent inspection is a guarantee that the property is free from defects, when, in fact, the appraisal only establishes the value of the property for mortgage insurance purposes. Buyers need to secure their own home inspection through the services of a qualified inspector and satisfy themselves about the condition of the property. If available in a timely manner, home inspection reports should be sent to the appraiser: this affords the appraiser the opportunity to make valuation adjustments as needed."

In conclusion, an FHA appraisal inspection is not as technically exhaustive as a professional home inspection. The primary objective of all appraisal inspections is to collect data to aid in the determination of the opinion of value. The same is true for the FHA inspection, however a second, equally important objective is to note any readily observable conditions which may affect the safety, salability, and security of the subject property.

Please refer to www.hud.gov for more information.

Top FHA Repairs

Often, many common repairs can be completed before the appraiser has arrived to do the inspection. Here is a list, through our experience, of the most common repairs.

-Installing GFCI (ground fault circuit interrupter) outlets in kitchen and bathrooms.

-Wood-destroying insect inspection required.

-Scrape and paint: Exposed wood, rusted garage doors, wood trim on windows, wood trim under eaves.

-Patching/feathering of concrete on driveways and sidewalks.

-Provide positive grade from subject property. (Ground slants down towards foundation; usually causes foundation problems)

-Install handrails at locations with three or more steps - interior and exterior.

-Certifying foundation, roof, and furnace. (Certification can be done by a licensed contractor, home inspector or city inspector.)

-Gutters and downspouts: Scrape and paint, provide and/or secure, clean

-Repair/replace broken windows.

-Trim tree branches within three feet of roof.

-Remove garbage.

-Caulk bathtub/shower.

-Tuck point brick. (Tuck point = remortar unsecured or loose bricks)

Keep in mind that every home is different; many of these repairs may not be necessary or other repairs may be warranted.