If you are one of the many homebuyers looking to qualify for an FHA loan to purchase a primary residence, you will need to get an appraisal. An FHA appraisal establishes the value of the property you are purchasing and makes sure that it is safe for its new occupants.
What Is An FHA Loan?
An FHA loan is a government-backed loan program with more lenient credit and down payment requirements and is intended to help homebuyers who may not qualify for conventional financing.
An FHA loan from FHA approved lenders requires less stringent underwriting guidelines. FHA loans requires only a 3.5% down payment, making them very popular among first-time buyers, and this loan program pairs well with JVM’s fast 14-day closing timeline.
Who are FHA loans best suited for?
If you have a credit score too low for conventional loan approval.
620 is the minimum credit score required for conventional mortgages, but with multiple “risk factors” (high debt ratios, low down payment, etc.) you may not be able to receive approval for conventional financing with a score below 700. FHA financing will allow credit scores as low as 580.
If you have a lower down payment.
FHA loan down payments let buyers put down as little as 3.5%. To help cover the additional costs of obtaining your loan, you can opt for a higher rate, use a payment gift, or take a large lender credit to help offset closing costs, instead of paying for these out of pocket.
If you are considering buying a multi-family residence.
FHA loans are also useful if you are targeting 2-unit properties, as the 3.5% minimum down payment is far lower than the 15% down needed for conventional duplexes. For 3-4 unit properties, the 3.5% minimum down payment also applies, but these properties are required to meet a “cash flow” requirement, which can be hard to satisfy in today’s market.
If you have an appraisal shortfall.
FHA financing offers a strong alternative for buyers who encounter an appraisal shortfall and wish to restructure their loan amount. Going from a higher down payment requirement with conventional financing to a 3.5% down payment can free up funds to cover an appraisal shortfall.
What is an FHA Appraisal?
FHA loans refer to mortgages insured and offered by the Federal Housing Administration. Best suited for novice buyers or those with lower income and low credit, FHA loans are typically offered by the bank and backed by the federal government.
The benefit of acquiring FHA mortgage insurance is below-average interest rates, flexible credit requirements, and low down payments. The flexibility and low rates allow buyers of all kinds to make a purchase.
How Do FHA Appraisals Work
An FHA appraisal, and really any real estate appraisal and inspection, has two purposes: 1) provide a value for the home and 2) ensure some basic safety requirements of the property. Typically, the process isn’t typically very different from any other mortgage.
If you’re a homebuyer, the appraisal value also provides you with the current market value of the home you’re trying to purchase.
The safety checks completed with FHA appraisals are to ensure the property is move-in ready. If there are exposed floorboards or the utilities don’t work, that can be flagged by the appraiser as a health and safety issue.
What Do FHA Appraisers Look For?
An appraiser will be looking out for anything that affects the health and safety of the home, the structural integrity of the property, or has a negative impact on the normal use of the property and its potential future sale.
Some of the health and safety items an appraiser will look out for are:
- Hazardous materials
- Toxic substances
- Mold
Additionally, there are FHA restrictions on the location of power lines, properties within 300 feet of a tank containing more than 1,000 gallons of flammable or explosive material, and homes built before January 1, 1979, when lead paint was used in construction.
Are Appraisals Public Record?
A real estate appraisal is not public. An appraisal shouldn’t be confused with the county tax assessment, which is available for the public to review.
Real estate appraisals are commonly done for individual homeowners or lenders. The appraiser’s client will be determined by who ordered the report.
If a bank orders an appraisal for a refinance or purchase of a home they are considered the appraiser’s client even though the owner or buyer paid for the report. In this case, the appraiser can only provide a copy of the appraisal report to the bank or mortgage lender, however, the lender can then share the report with you or your real estate agent.
If an appraisal is performed for an individual rather than a bank then that person is the client of the appraiser. In this case, the appraiser then provides the report directly to them and again they can give it to whomever they want. In both cases, the appraiser is not permitted to give the appraisal to anyone but their client, therefore, it is not part of public records.
FHA Appraisals Are Public Record Though (Sometimes)
The only exception is FHA. FHA appraisals become quasi-public record once they are uploaded to the FHA website (FHA Connections). Once uploaded, an FHA appraisal runs with the property for six months no matter what. Many lenders, however, avoid uploading problem appraisals.
Jay Voorhees
Founder/Broker | JVM Lending
(855) 855-4491 | DRE# 1197176, NMLS# 310167
