For some of us who can remember the days when FHA mortgages were to be avoided like the plague it almost seems like a quaint notion that Sellers and Buyers didn't have to worry about appraisers coming in behind home inspectors to do a home inspectors job.  The FHA, it seems, wants its appraisers to hunt down "health and safety" issues in addition to their regular job which is simply to ascertain value for the mortgage company or bank.

This may be all to the good in a "normal" market. When the market is a hot Seller's market, no one touches FHA because of the dreaded appraisal issues.  Even if the Seller is willing to make repairs or provide a Buyer credit because of the results of a thorough home inspection, they may have to make more repairs - non-negotiable repairs - because of an appraisal. So FHA went by the wayside during the huge selling frenzy of the early 21st Century.

As a result, FHA toned down their requirements for appraisers to look under every nook and cranny to find "health and safety" issues.  It seemed that FHA wanted to attract borrowers back into the fold. No more dreaded VC sheets. Only the most glaring issues would show up on the appraisal.

Fast forward to today.  FHA is about the only mortgage available to moderate income (mostly first-time) home buyers. If a home buyer doesn't qualify for a VA mortgage then FHA is the way to go. Lenders really like the government backing and borrowers like the low down payment and flexible credit guidelines.

However, now the monster appraiser is back on the scene! 

Even though most of the homes that are available to moderate income (mostly first-time) home buyers fall into the bank-owned or short sale category, the FHA appraiser is out there looking for chipping paint and loose handrails so that the buyer will need to jump through hoops, dance a merry jig and stand one their head clucking like a chicken in order to get to settlement.  Oh!  Since appraisers are so busy nowadays with the new and improved re-finance boom, they don't get their report in to the lender until the week before settlement.

Why does the buyer have to worry about this?  After all the "health and safety" issues in the appraisal are supposed to protect the buyer.

It's because in the case of bank-owned homes or short sales, the seller is not going to make any repairs, let alone something an appraiser found. Home inspections are performed for "informational purposes only" and allow one decision to be made after an inspection -- move forward or void the contract.  So, in 99% of the cases out there the Seller isn't going to do anything so the buyer needs to get into the house to touch up the paint or install a handrail or move a stove out of an "illegal" downstairs kitchen some previous owner installed for their mother-in-law or renters.

Then the appraiser needs to come back and "re-inspect" to make sure the house has been repaired properly.  Gone are the days when the appraiser determined value. Now, in addition to jumping thorugh all the mortgage documentation and verification hoops, all the tighter, more stringent credit underwriting guidelines the buyer may need to do a little "fix-up" even before they go to settlement and move-in.

FHA is not kinder and gentler. Bank owned and short sales may not be "the deal" some people are looking for, especially if they have to do repairs before they own the house.