FHA loans are a popular option for financing a home purchase because of their relaxed credit requirements and low-down payments. However, it’s important to know that if you’re planning on buying a home with an FHA loan, the property you choose will need to meet certain standards. Here’s everything you need to know about FHA loan guidelines for home inspections.
Getting an FHA loan to buy a house? You may be wondering if you can waive the inspection contingency and expedite the home buying process. The short answer is no, you cannot waive inspection with an FHA loan.
While the FHA doesn’t require a general home inspection, it does mandate an appraisal. This appraisal serves as an inspection of sorts, though not as exhaustive as a full home inspection.
Confused about the difference between an FHA appraisal and inspection? Read on for an in-depth look at FHA appraisal guidelines, inspection requirements, and why you can’t skip either when getting an FHA home loan.
What Is An FHA Appraisal?
An FHA appraisal is a required part of the FHA home buying process. FHA loans are insured by the Federal Housing Administration part of HUD.
Before approving an FHA loan the FHA requires an appraisal to ensure
- The home is valued accurately
- The property meets FHA minimum property standards
Like any appraisal, an FHA appraisal determines the fair market value of the home based on comparable sales, location, square footage, and other factors. This helps ensure the buyer isn’t overpaying and protects the lender should the borrower later default.
However, FHA appraisals go beyond valuating the home. The appraiser also inspects the overall property condition to ensure it’s safe, secure, and habitable according to HUD guidelines.
How Do FHA Appraisals Work?
To get an FHA loan, the property must be appraised by an FHA-approved appraiser. Here’s how the FHA appraisal process typically works:
- Mortgage lender orders appraisal through FHA appraisal system
- Assigned FHA appraiser contacts home seller to schedule visit
- Appraiser inspects home’s interior, exterior, and site
- Appraiser determines fair market value and condition
- Appraiser completes Uniform Residential Appraisal Report
- Appraisal submitted to lender for underwriting
The FHA appraisal costs around $400-$500 on average, and homebuyers typically pay this fee.
FHA Appraisal Vs. Home Inspection
FHA appraisals involve a property inspection, but they aren’t as comprehensive as a professional home inspection. Key differences include:
Purpose
- FHA appraisal – Assess value and basic safety/condition
- Home inspection – Thoroughly evaluate condition of all systems and components
Performed By
- FHA appraisal – FHA-approved appraiser
- Home inspection – Licensed home inspector
Required?
- FHA appraisal – Required for all FHA loans
- Home inspection – Optional but recommended
Tests Systems & Components?
- FHA appraisal – No testing, visual inspection only
- Home inspection – May include systems testing
Inspection Time
- FHA appraisal – 1-2 hours on average
- Home inspection – 3-5 hours on average
Provides Written Report
- FHA appraisal – Uniform Residential Appraisal Report
- Home inspection – Comprehensive inspection report
Recommends Repairs?
- FHA appraisal – Yes, if needed for safety/habitability
- Home inspection – Yes, provides repair recommendations
Cost
- FHA appraisal – $400-$500, paid by buyer
- Home inspection – $300-$500, paid by buyer
As you can see, the FHA appraisal is primarily concerned with value, safety, and habitability. While thorough home inspections also check these, they go deeper into evaluating the home’s overall condition.
Why Can’t You Waive Inspection on an FHA Loan?
When buying a home, some buyers choose to waive the inspection contingency. This means they agree to purchase the home “as-is” without an inspection.
Waiving inspection contingencies can help make an offer more attractive to sellers. However, it also means taking on unknown risks about the property’s condition.
With an FHA loan, you cannot waive the inspection because it’s built into the mandatory FHA appraisal process. Since the appraisal serves as the FHA’s inspection, you can’t buy an FHA-financed home without it.
Some buyers try waiving the appraisal, but lenders will not approve an FHA loan without the completed appraisal report. It’s a key underwriting requirement for all FHA loans.
That said, you could certainly choose not to get a separate home inspection. But because FHA appraisals don’t provide the depth of a true home inspection, this isn’t advisable.
Should I Also Get a Home Inspection?
Even though you can’t bypass the FHA appraisal, it’s smart to also get a home inspection before closing on an FHA home purchase.
A home inspection provides valuable insight into a home’s physical condition. Inspectors may find issues not discovered in the FHA appraisal, like:
- Minor roof damage
- Evidence of leaks
- Faulty electrical components
- Foundation cracks
- Pest damage
- Malfunctioning HVAC systems
If the inspection reveals expensive repairs needed, you can often negotiate with the seller. Most buyers include an inspection contingency in their offer. This allows them to request repairs or even cancel the purchase if the inspection turns up deal-breaking problems.
Follow these tips for getting the most out of your home inspection:
- Research and hire a licensed, experienced home inspector
- Attend the inspection so you can see issues firsthand
- Review the full inspection report after the inspection
- Get repair estimates for any costly issues found
- Request repairs or credits from seller as needed
What Happens After FHA Appraisal and Inspection?
The FHA appraisal and professional home inspection both give buyers key insights into the home’s condition. What happens next depends on their findings.
If the FHA appraisal turns up safety or habitability issues, the lender will require those repairs before approving the FHA loan. You or the seller must pay for appraisal-required repairs.
Deficiencies noted in a home inspection allow you to request fixes from the seller. If repairs are costly, you could negotiate a lower purchase price or credit. If the seller won’t fix major issues, you can terminate the purchase.
Bottom line: The mandatory FHA appraisal ensures the home meets minimum property standards. Coupling it with a comprehensive home inspection safeguards home buyers from expensive surprises down the road.
Can You Waive Appraisal on a Conventional Loan?
If you’re getting a conventional mortgage instead of an FHA loan, can you waive the appraisal and inspection?
With a conventional loan, the lender may allow waiving the appraisal under certain circumstances. For instance, if you put down 20% or more as a down payment, some lenders will lend without an appraisal.
However, it’s riskier to waive the appraisal on a conventional loan too. The appraisal protects both you and the lender. While permitted, many experts don’t advise waiving this key step when buying a home.
As for inspection, you may be able to negotiate waiving the inspection contingency and buy the home “as-is.” But you’ll take on greater risk as a buyer by doing so.
Key Takeaways
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FHA loans require an appraisal to check the value and condition of the property. This appraisal serves as the FHA inspection.
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You cannot waive the FHA appraisal when getting an FHA-insured mortgage. The completed appraisal is mandatory.
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Home inspections are optional but highly recommended. They provide more detail than an FHA appraisal.
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On a conventional loan, you may be able to waive the appraisal and inspection. But both help protect home buyers from making a costly mistake.
The bottom line? You can’t bypass the FHA appraisal requirement. Be sure to couple it with a thorough home inspection before sealing the deal, so you know exactly what you’re getting with the property.
What Do FHA Appraisers Check for?
When inspecting a property, FHA appraisers look for any damage, maintenance issues, and hazards that could make the property uninhabitable. In general, the FHA requires that property must be:
- Safe – The property must be safe for the buyer(s) to live in. Any issue that could hurt the buyer’s health and safety may result in a failed inspection.
- Sound – The home must be structurally sound.
- Secure – The home should be in a condition that does not compromise the security of the property.
If the appraiser finds any issues that fall into the categories mentioned above, they will include them in their report. This report is then handed over to your lender. Then, your lender will determine what repairs need to be made to bring the property up to standard so that it meets FHA loan guidelines.
Cosmetic Repairs Vs. Required Repairs
It’s important to know that the FHA does not require repairs for cosmetic or minor deficiencies. So long as these issues do not impose any hazard or affect the safety, structural soundness, or security of the property, the FHA allows them.
Some examples of cosmetic/minor defects include:
- Minor plumbing leaks
- Cracked window panes
- Poor workmanship
- Cracked sidewalks
- Missing handrails
- Other minor defects
ASK AWAY: Can you use an appraisal waiver on VA and FHA?
FAQ
Can you get an appraisal waiver on an FHA loan?
How strict is the FHA inspection?
What happens if a house fails an FHA inspection?
What will disqualify a home from an FHA loan?
Do FHA loans require a home inspection?
So while an appraisal is required, a comprehensive home inspection is not. To reiterate, FHA loans do not require a traditional home inspection. But HUD strongly encourage buyers to have one done. In fact, they require mortgage lenders to provide a disclosure that states the importance of having a proper home inspection conducted.
Does an FHA appraisal include a home inspection?
The two are NOT the same and relying on the appraisal to determine the home’s true condition is a big mistake. Many people including your lender may refer to the FHA appraisal process as an “inspection”. But do not be fooled by the use of this word-an FHA appraisal does not include a home inspection.
Does HUD require a home inspection for FHA-insured home loans?
The short answer: The Department of Housing and Urban Development (HUD), which manages this program, does not require home inspections for FHA-insured home loans. But they do require a property appraisal to be conducted. And during the appraisal, the appraiser will inspect the property to make sure it meets HUD’s minimum property guidelines.
Does a home inspection affect FHA approval?
Home Inspection: Encouraged by documents like HUD form #92564-CN, a home inspection can reveal issues that may affect FHA approval, allowing you to renegotiate or exit the contract. In some FHA loans, such as the 203 (k) program, an FHA-approved consultant is instrumental.
Do you need a home appraisal if you have an FHA loan?
When you get serious about buying a specific home with an FHA mortgage loan, there will be an appraisal process that the lender uses to make a determination of the home’s fair market value. This appraisal is also used to insure the home meets minimum FHA loan requirements, but cannot and should never be considered a home inspection.
Can a home appraisal be considered a house inspection?
This appraisal is also used to insure the home meets minimum FHA loan requirements, but cannot and should never be considered a home inspection. The home inspection on the property you buy with your FHA mortgage is something you the borrower must arrange and pay for.