FHA Appraisals and FHA Appraisal Management

An FHA appraisal is unique as it is required to meet all of the guidelines for USPAP, the lender and HUD as well as standard appraisal guidelines. The appraisal is a critical component of an FHA mortgage. FHA recently adopted similar guidelines to the HVCC and to aid our clients and prospective clients we have prepared a best practice implementation guide. 

- FHA Appraisal Compliance
- Reverse Mortgage Appraisal 

FHA Appraisal independence guidelines are very similar to those of the recently sunset HVCC and newly Frank-Dodd Bill. They do not allow a mortgage originator to select or retain an appraiser. Due to this regulation most appraisals will be ordered through a third party appraisal management company. 

Our apache appraisal management system allows us to track, manage and route FHA case numbers to the designated staff member. The system also allows the client to update the case number within our system to ensure the appraiser assigned has the case number before the inspection We only use FHA certified residential or certified general apprasiers and the average appraiser has over 15 years of appraisal experience.

FHA Property Standards and Guidelines

With the extensive property and inspection requirements an FHA appraisal must meet. It can become confusing as to what needs to be fixed or not as well as what is acceptable by FHA. The HUD Handbook is over 450 pages thick and that is exactly why we have summarized important information below. FHA has always had stringent appraisal requirements in that even minor defects in the properties condition needed to be remedied prior to closing the loan. In December 2005 FHA made a number of changes to their requirements, allowing for "As Is" appraisals, even if minor defects to the property condition exist which makes it much easier to obtain FHA Financing.

• You must use an appraiser from FHA's approved list which is the FHA Roster.
   
• As of Oct, 1 2009 FHA requires appraisers be certified residential or certified general. All licensed appraisers have been removed from there approved list in the effort to ensure accuracy of appraisals.
   
• The lender must provide the appraiser with a case number for inclusion on their report.
   
• Major deficiencies in the property's condition still require a cost to cure. It is always best to let the lender select the appraiser but even more so if you are getting an FHA appraisal because the appraiser must be well versed in FHA requirements.
   

Further Details of FHA appraisal changes :

FHA appraisals occurring on or after January 1, 2006 now only require repairs for conditions that rise above cosmetic defects, minor defects, or normal wear and tear. Appraisers must report ALL deficiencies but lenders can use professional judgment and prudent underwriting practices to determine when a property's condition is a threat to safety or jeopardizes structural integrity. 

This is a list of examples that no longer require automatic repair to existing properties, but are not limited to:

• Missing handrails
   
• Cracked or damaged exit doors that are otherwise operable
   
• Cracked window glass
   
• Defective paint surfaces in homes built after 1978
   
• Minor plumbing leaks such as faucets
   
• Worn or soiled floor coverings or finish
   
• Rotten or worn out counter tops
   
• Damaged plaster or sheet rock or other wall and ceiling material on homes constructed after 1978
   
• Poor workmanship
   
• Trip hazards such as sidewalks or badly installed carpet
   
• Lack of all weather driveway surface
   

Examples of conditions that may be of risk to health and safety of occupants or soundness of property that continue to require automatic repair, but are not limited to:

• Inadequate access/egress from bedrooms to exterior of home
   
• Leaking or worn out roofs
   
• Structural problems such as foundation damage caused by settlement
   
• Defective paint surfaces in homes built before 1978
   
• Defective exterior paint on homes built after 1978 where finish is unprotected
   

FHA Inspection Requirements

FHA no longer mandates automatic inspections for the following items and or conditions in existing properties:

• Wood Destroying insects: only required if there is evidence of active infestation or appraiser states a need for one, mandated by state or local jurisdiction, or at lenders discretion
   
• Well (individual water system): It is required if mandated by state/local jurisdiction, if suspect of contamination or requires purification system, or when there is evidence of: pipe corrosion, intensive agriculture, coal mining/gas drilling, dump, junk yard, land fill, gas station or dry cleaning operation within 1/4 mile, or if there is a bad smell, taste, or appearance
   
• Septic: only required if evidence of failure, mandate, or lenders discretion
   
• Flat or unobservable roof
   

Examples of conditions that still require automatic inspection, but not limited to:

• Standing water against foundation, or excessively wet basement
   
• Hazardous materials on site
   
• Faulty mechanical systems: electrical, plumbing, or heating
   
• Structural failure: settlement or bulging foundation walls