FHA APPRAISALS

Those of you who have bought or sold a home are familiar with two keys to the transaction
being completed. One of these keys is the appraisal. If the appraised value of the home is less
than the contract price of the home, lenders almost always refuse to make the buyer a loan
based on anything other than the appraised value, oftentimes necessitating a renegotiation of
the contract price.

The second key is whether or not the loan is being guaranteed by a quasi-government entity
such as the FHA, as the FHA, in particular, requires an appraiser to follow very specific
guidelines in performing his appraisal. If you want the full spiel on these FHA guidelines, I refer
you to HUD Handbook 4150.2 available on the HUD website.

Allow me to begin by quickly defining what an appraisal is. An appraisal is an expert

assessment/opinion of a particular home in order to determine its market value. During the
appraisal process, the appraiser will look at comparable properties that have sold recently in the
same area as the one being purchased.

In a "conventional" appraisal where a non-government-insured home loan is being used, the

appraiser is only concerned with the condition of the property as it relates to value. However,
when an FHA loan is being used the appraiser has two objectives, first to determine the current
market value of the property (as is the case with a conventional appraisal), and second to do a
property inspection to make sure the home meets HUD's minimum standards for health and
safety.

So, what are some of the primary inspection areas required of FHA inspectors by HUD
standards?

the home must be habitable and comfortable, without any potential hazards to occupants
the lot should be graded in a way that prevents moisture from entering the home
all bedrooms should have egress to the exterior (doors or windows) for reasons of fire safety
as it is possible homes built before 1978 still contain lead-based paint, the appraiser must
check for peeling, chipping, etc.
all steps and stairways must have a handrail for safety
the heating system must be sufficient to create "healthful and comfortable living conditions"
inside the home
the roof should be in a good state of repair
the foundation should be in good repair and able to withstand "all normal loads imposed" on it

In the event the inspector identifies any violations of HUD standards, the inspector will do a final
inspection later and if the discrepancies are corrected before that final inspection the loan/deal
will move forward. Bottom line? While different, FHA appraisals are not unnecessarily strict
and prevent very few transactions from actually being consummated.

Ed Stewart lives in Grant Parish and is a licensed real estate agent in Louisiana. He is associated
with Keller Williams Realty Cenla Partners in Alexandria and can be reached on his cell (318-201-
3991) or office telephone (318-619-7796). Each Keller Williams Realty office is independently
owned and operated. Send your real estate questions to Ed via email at edstewart@kw.com or
chronicle1876@yahoo.com.