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As you are growing your career as a real estate appraiser, you want to have more doors of opportunity available for you. By registering yourself on the FHA roster, you’ll become eligible to take on Federal Housing Administration (FHA) appraisal assignment.
But what is an FHA appraisal? It is when a home purchaser is ineligible to obtain a conventional mortgage. (This could be due to a low down payment, poor credit score, insufficient income to support the debt ratio, etc.)
In such a situation, the borrower is required to get an FHA insured loan. This protects the lender in case the borrower defaults the mortgage.
Since the FHA takes on the insured responsibility, they would require an FHA appraisal to secure the loan.
The FHA appraisal is an assessment report done by a qualified FHA appraiser. Not only the opinion about the market value of the subject property is made, but the appraiser also needs to do a thorough inspection regarding the health and safety issues of it.
Difference Between a Conventional Appraisal and an FHA Appraisal
For a conventional appraisal, your role is to provide a professional opinion about the market value of the property. The strategy you use could involve the sales approach, cost approach, or the income approach.
Your report is often being used during a home purchasing process, where the mortgage lender will only finance the loan if your appraised value can justify for the risk that they are exposing into.
For an FHA appraisal, you still need to fulfill all the requirement for a conventional mortgage. However, the FHA appraisal has a more stringent standard. You must also inspect the health and safety condition of the property.
When there is any potential hazardous issue (i.e., loose handrails), you need to mark it in your report. For a conventional mortgage, the lender could be more lenient about the needs for minor repairs. So as long as the buyer can accept them, then the deal could through.
However, FHA demands a higher standard so all these fixing would need to be done before they insure the loan.
What Should You Check for an FHA Appraisal?
For a property to be FHA approved, it must meet the guidelines set out by the Housing and Urban Development (HUD).
During the appraisal process, you are required to inspect the interior and exterior structure and quality of the subject property.
Although it is always the best to refer to the FHA handbook for exact details, we understand the entire guidelines are quite long to read. So we created the checklist below to remind you what are some important items that need your inspection.
Your Checklist in Conducting an FHA Appraisal
- Check for leaks, cracks, or damage from the exterior
- Good landscaping with a slope where water could drain outward of the property and not toward
- Hand railings are installed securely on decks, patios, porches, balconies, and stairs.
- No leaking roof – It must be able to keep moisture from the house. If the lifetime of a roof is expected to be less than two years, then it must be properly stated in the report.
- No exposed electric wiring
- No lead paint – Many homes built before 1978 has a lead-based paint, which causes a potential health hazard.
- Windows are in good condition
- Functional heating system
- Proper drainage
- Water, sewage, gas, and electric utilities are available
- Safe drinking water source
- All crawl spaces must have a natural ventilation
- Property is not vulnerable to termites
- All appliances are functional (i.e., air condition, furnace, water heater)
- Ceiling and walls do not have holes or crack
- If possible, you should access and inspect the attic -there could be not enough heat insulation, or mold problem.
Other Procedures to Keep in Mind for an FHA Appraisal
You need to include the following photos in your appraisal report:
- Front, back, and sides of the property
- Upgrades or home improvement that could lead to the home value increase
- The condition of the lot
In addition, you’ll have to attach a copy of the location map showing the comparable sales.
Out of all the factors, the size of the lot, how big the house, and location of the property remain the most critical factors to determine the appraised value.
So are there any appraisal tips you could share?
Here’s a home appraisal checklist. This could be a helpful tool to share with your referral partners.
Is FHA Appraisal Guideline Unnecessarily Strict?
Many people misunderstand that the FHA guidelines would be unreasonably strict and they are not necessarily. Therefore, some home sellers hesitate to enter into a purchasing agreement with FHA loan borrowers.
However, the FHA appraisals often are not the deal breakers as many issues can be easily resolved. For example, a loose handrail may just require some screws tightening. As long as they are corrected before the final inspection, then the FHA loan could still move on.
When an FHA loan goes off track, it is usually when a serious hazardous condition cannot be easily fixed. For instance, old property with holes in the floor or a poor roof condition.
But realistically speaking, with such severe health issues, even without the FHA guidelines, many buyers and conventional lenders would be reluctant to move forward with the deal.
How Much Can You Earn from Working on an FHA appraisal?
Just like any other appraisal, your charge could depend on the complexity of the house, its location, the amount of work involved and the competition in your region.
However, we talked to a Certified Residential Appraiser in North Carolina, and he typically would charge $100-$150 more for an FHA appraisal.
It is reasonable since the amount of work involved could be more. Besides, you might need to revisit the property to confirm if all the hazardous issues have been corrected.
The FHA does not establish a fee schedule, so it’s up to you and your clients to negotiate the appraisal fees. According to the Uniform Residential Appraisal Report (URAR), the average FHA appraisal cost ranges between $300-$500.
Final Thoughts About FHA Appraisal Assignments
If you are planning to build your career in the real estate appraisal field, there’s no reason to neglect the FHA appraisal work opportunity. After all, they are not a separate niche of complex properties.
The chances you run into such an assignment depends on whether the home buyer needs to obtain an FHA loan. In other words, this could happen to any type of properties.
Keep in mind the guidelines set out by the HUD could change over time; therefore, it is essential always to keep up-to-date.
First, you should register yourself on the FHA roster, here are the steps to do so.
So what’s your experience in working on FHA appraisal? Please share with us in the comment below.
Disclaimer: We are not affiliated with the government or FHA. The information in this post is for general information only, and not intend to provide any advice. They are subjected to change any notice, and not guaranteed to be error-free. For full and exact details, please contact the relevant professional, the Regulatory Board in your state or the HUD.