FHA Appraisal Requirements – What You Need to Know

FHA Appraisal Tips

The following are excerpts from HUD Mortgagee Letter 2005-ML-48 regarding repair and inspection requirements.

FHA Repair Requirements:   Below are examples of minor property conditions that no longer require automatic repair for existing properties include, but are not limited to:

* Missing handrails * Cracked or damaged exit doors that are otherwise operable * Cracked window glass * Defective paint surfaces in homes constructed post 1978 * Minor plumbing leaks (such as leaky faucets) * Defective floor finish or covering (worn through the finish, badly soiled carpeting) * Evidence of previous (non-active) Wood Destroying Insect/Organism damage where there is no evidence of unrepaired structural damage * Rotten or worn out counter tops * Damaged plaster, sheetrock or other wall and ceiling materials in homes constructed post- 1978 * Poor workmanship * Trip hazards (cracked or partially heaving sidewalks, poorly installed carpeting) * Crawl space with debris and trash * Lack of an all weather driveway surface

Below are examples of property conditions that may represent a risk to the health and safety of the occupants or the soundness of the property for which FHA will continue to require automatic repair for existing properties include, but are not limited to:

* Inadequate access/egress from bedrooms to exterior of home * Leaking or worn out roofs (if 3 or more layers of shingles on leaking or worn out roof, all existing shingles must be removed before re-roofing) * Evidence of structural problems (such as foundation damage caused by excessive settlement) * Defective paint surfaces in homes constructed pre-1978 * Defective exterior paint surfaces in home constructed post-1978 where the finish is otherwise unprotected * Exposed sub-flooring, missing carpet, vinyl, tile floors

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

* Wood Destroying Insects/Organisms:  inspection required only if evidence of active infestation, mandated by the state or local jurisdiction, if customary to area, or at lender’s discretion * Well (individual water system):  test or inspection required if mandated by state or local jurisdiction; if there is knowledge that well water may be contaminated; when the water supply relies upon a water purification system due to presence of contaminants; or when there is evidence of: Corrosion of pipes (plumbing)Areas of intensive agriculture within 1/4 mile Coal mining or gas drilling operations within 1/4 mile Dump, junkyard, landfill, factory, gas station, or dry cleaning operation within 1/4 mile Unusually objectionable taste, smell or appearance of well water (superceding the guidance in Mortgagee Letter 95-34 that requires well water testing in the absence of local or state regulations) * Septic:  test or inspection required only if evidence of system failure, if mandated by state or local jurisdiction, if customary to the area, or at lender’s discretion * Flat and/or unobservable roof

FHA Appraisal Requirements:  Appraisers are to recommend only those repairs necessary to make the property comply with FHA’s Minimum Property Requirements (MPR) or Minimum Property Standards (MPS) together with the estimated cost to cure. Recommended repairs are based on a visual inspection of readily observable items only.

Cosmetic repairs are not required; however, they are to be considered in the overall condition rating and valuation of the property. Examples of cosmetic repairs would include surface treatments, beautification or adornment not required for the preservation of the property. For example, generally, worn floor finishes or carpeting, holes in window screens, or a small crack in a windowpane are examples of deferred maintenance that do not rise to the level of a required repair but must be reported by the appraiser.  The physical condition of existing building improvements is examined at the time of the appraisal to determine whether repairs, alterations or inspections are necessary – essential to eliminate conditions threatening the continued physical security of the property.

Required repairs will be limited to necessary requirements to:

• Protect the health and safety of the occupants (Safety)
• Protect the security of the property (Security)
• Correct physical deficiencies or conditions affecting structural integrity (Soundness)