What You Need To Know About The FHA Home Appraisal
It’s safe to say anyone who was in the market to buy a home last year knows that 2016 was a hot and heavy sellers’ market across the country. We saw far more first time home buyer’s than homes on the market to satiate the demand. And, while the conventional loan still remained the most popular among the majority of home buyers, the FHA-backed loan accounted for 17.5 percent of all purchase and refinance loans at this time last year which is a top pick for first time home buyers in Richmond, Virginia.
As a testament to the program’s popularity, Q1 home loan originations last year decreased 8 percent over 2015’s level yet FHA’s loan share increased 7 percent — the fifth consecutive quarter with an increase.
Since so many first time home buyer’s are using the FHA-backed loan, and there are many aspects of the program that differ from a conventional loan, today we’d like to clear up the confusion surrounding the FHA appraisal.
WHAT IS AN APPRAISAL? | FIRST TIME HOME BUYER
Quite simply, an appraisal is an evaluation of a home’s current market value. Yes, real estate agents determine this value for their listing clients and use many of the same methods that a professional appraiser uses, but the home appraisal demanded by the lender uses an appraiser of its choosing and this person has the final say (usually) on how much a home is worth. The good news is that the Albritton Real Estate Team offers their first time home buyer clients free appraisals when using their preferred lender!
Lenders naturally want to ensure that the home they are lending money on is worth at least what the buyer is paying for it. To determine its worth, the appraiser will visit the home, taking a look at the structure, roofing, foundation, lot size, location within the neighborhood and more.
He or she will consider the home’s interior as well, verifying the square footage (which is actually determined by the exterior measurements of the home), making note of any improvements. Back at the office, the appraiser will research recent real estate activity in the neighborhood, comparing the home to those which have sold, to come up with the value of the home.
FIRST TIME HOME BUYER | ABOUT FHA APPRAISALS
Just as the lender wants to ensure the home is worth the money its lending, FHA wants to make sure the house is worth the amount it’s insuring. But, the FHA appraisal goes a step further – ensuring that the home meets HUD’s minimum health and safety standards.
Therefore, all homes purchased with an FHA-backed loan must be appraised by a HUD-approved home appraiser and certain property requirements must be met for the FHA to finally ok the purchase.
As mentioned above, most of these have to do with the “safety and well-being of the occupants,” according to FHA. These requirements include:
All stairways must have handrails
All bedrooms must have at least one closet
There must be “access/egress” from each bedroom to the outside of the home
The FHA inspector must find no structural problems, such as damage to the foundation or roof
The appraiser will check the lot’s grading to ensure that it slopes away from the home to prevent water intrusion into the foundation or basement
If the home was built before 1978 and the appraiser suspects it contains lead-based paint, he or she will look for chipped and peeling paint.
The heating system must be in good working condition
Now, if any of these requirements aren’t met, the appraiser will mark them as “subject to repair,” which means that the seller will need to repair the problems before FHA will insure the loan.
If the FHA appraiser determines that the home isn’t worth what the buyer has agreed to pay for it, negotiations on price re-open and there are a number of ways to approach them. If the seller doesn’t agree to fix the problems, on the other hand, the sale will not go through. Thankfully, unless the required repairs are prohibitively costly (such as adding doors or windows to provide egress to the home’s exterior), most sellers understand their obligation to make them so the deal can go through.
Currently our Richmond, Virginia housing market is very competitive with our new first time home buyer’s and every first time home buyer needs to be aware of the various first time home buyer lending programs available to new home buyers. We suggest you work with a Realtor and lender to find what loan works best for your particular situation! If you’re looking at buying or selling a home in the Richmond, Virginia and surrounding area, please contact the Albritton real estate team and ask about our first time home buyer programs!