Davia Cameron

Davia Cameron

Real Estate Consultant
DRE#

Appraisals: FHA vs Conventional Loans

By Davia Cameron - February 11, 2020

Up until the past decade or so, there were many differences between FHA and conventional appraisals. However, since the time of the recent market crash and recovery, the differences have become less extreme. In the article we discuss some of the primary differences that remain.

FHA loans require appraiser "flagged" issues to be corrected for the loan to process. With Conventional loans it is often up to the lender to decide if a repair must be done or if some other arrangement can be made (escrow for repairs, etc).

 

HUD also has more detailed inspection requirements with supporting publicly available documentation whereas conventional lenders typically have their own private scope of work specified. The private specifications often overlap but are generally less intense in scope.

In most instances any significant safety, health, or structural soundness issue will need to be corrected regardless of the loan type. If you know that you have a  major issue in these areas, it is a good idea to have that discussion up front with your loan officer. This is why using a strictly internet based outfit for your loan can be a really bad idea in some instances.

 

 

A Few Relevant HUD Guidelines

AC - The temperature control must create an environment of "healthful and comfortable living conditions". In South Florida, that means air conditioning needs to be in place and functioning, but heat does not. Your area will vary and northern locations will often require a functioning heat source.

Roof - The roof must "provide reasonable future utility, durability and economy of maintenance". It is worth noting that almost all lenders require a minimum of 5 years remaining useful life and any significant roof issues that are found during the appraisal will probably need to be repaired for ANY loan. If an appraiser sees that the roof looks "rough" they are probably going to call for an inspection.

Foundation - The foundation should be able to withstand "all normal loads imposed". If you are having a home appraised and it has an elevated foundation, the appraiser will usually want to examine the crawl space beneath the home. For FHA appraisals they will need a photo of the area as proof that they viewed it, so it is a good idea to clear the access path. If you don't have access to the crawl space, it will be noted in the report and will probably hold up the loan, so stay ahead of the issue and clear the path if possible.

Health & Safety - The home must be "free of all known hazards and adverse conditions that may affect the health and safety of the occupants". You will continue to see this theme throughout our articles and it cannot be stressed enough that this applies to virtually all standard loan types.

Required repairs are "limited to those repairs necessary to preserve the continued marketability of the property and to protect the health and safety of the occupants". Note that a structural problem will probably inhibit the "continued marketability" of the home.

 

External Influences - HUD does have requirements specific to some external influences such as airports. We will have a separate article that addresses these in the near future.

Reference Publications

HUD Handbooks 4000.1 "Single Family Housing Policy" and 4150.2 "Valuation Analysis for Single Family One to Four Unit Dwellings" are great sources for information about FHA appraisal requirements for standard residential properties. We did not put links for these specifically because they get updated often.

https://www.experiencedappraisers.com/post/appraisal-tips-for-florida-realtors-fha-vs-conventional-loans

 

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