Structural Requirements for FHA Loans

By
Mortgage and Lending with Equity Resources NMLS 67179 Licensed in NC

FHA Appraisers have certain requirements that go above those required of a Conventional Appraiser.  Because of that, FHA Appraisals are more detailed, and are usually at least $50 or more expensive. Structural Requirements for FHA Loans means that the Appraiser must note that the Utilities are on, and that the systems are in working order.

Some of you may not realize it but I’ve been in this business as second generation mortgage banker for several decades.  I have my FHA Underwriter designation and after he retired, my dad became an Appraiser.  With Sellers being picky about accepting a FHA Loan Offer, I wanted to share some of the requirements for the home that FHA asks the Appraiser to note.

Structural Requirements for FHA Loans

The FHA Mortgage Loan Handbook instructs the appraiser to:

  • Identify non-contiguous living areas and analyze its effect on Functional Obsolescence.
  • Ensure that FINISHED Basements and Unfinished Attic areas are not included in the Gross Living Area.
    • “When any part of a finished level is below grade, the Appraiser must report all of that
      level as below-grade finished area, and report that space on a different line in the
      appraisal report, unless the market considers it to be Partially Below-Grade Habitable
      Space.”
  • If you have additions, they should be permitted. In Johnston County, for instance, almost all houses are built with stairs to the attic, and drywall laying on the floor  Then, you want to finish the space out yourself, you can!  That’s the good news.  The bad news is that if you don’t permit it (so that you are not paying taxes on that additional space) then the appraiser will not give the same value to that square footage.
  • The Appraiser must note which appliances are going to remain in the home and contribute to the Value, they must also note that they are operational.  (Note they do not go into the same detail a home inspector does, but if the stove won’t turn on, that’s a problem).
  • The Appraiser must report readily observable defects in a non-covered pool that would
    render the pool inoperable or unusable. If the pool water contains algae and is aesthetically
    unappealing, but the Appraiser has no evidence that the pool is otherwise contaminated, no
    cleaning is required. Swimming pools must be operational to provide full Contributory
    Value.
    • “If the swimming pool has been winterized, or the Appraiser cannot determine if the pool is in
      working order, the Appraiser must complete the appraisal with the extraordinary assumption
      that the pool and its equipment can be restored to full operating condition at normal costs.”
  • The Appraiser must note if the mechanical systems do not appear to be working property, or if they have inadequate capacity.  This is especially true with air conditioners and heating systems.
    • Central Air Conditioning is not required, however, if it’s in place, it must be in good working order.  A pot-bellied stove to heat the space is likely to be rejected, as the heat source must operate without human intervention for extended periods of time.
  • The Appraiser must observe the physical condition of the plumbing, heating and electrical systems. The Appraiser must operate the applicable systems and observe their performance. If the systems appear to be damaged or do not appear to function properly, the Appraiser must condition the appraisal for repair or further inspection.
    • This is also why the Utilities must be on during the Appraisal report.  f they are not no, then the appraiser is required to do a re-inspection.
  • The Appraiser must examine the electrical system to ensure that there is no visible frayed wiring or exposed wires in the dwelling , including garage and basement areas, and report if the amperage and panel size appears inadequate for the Property. The Appraiser must operate a sample of switches, lighting fixtures, and receptacles inside the house and garage, and on the exterior walls , and report any deficiencies. The appraiser is not required to insert any tool, probe or testing device inside the electrical panel or to dismantle any electrical device or control.
  • FHA Mortgages and USDA Home Loans share the same standards for Private Roads, and the Appraiser must note the road construction on the Appraisal.  The streets must meet a minimum standard of having an all-weather service construction.  The FHA Loan Private Road Agreement must state exactly how the road is going to be maintained, how the cost of maintenance is going to be calculated and how the decision that the road needs to be “upgraded” is going to be determined. Typically, this means that everybody who is accessing the road is charged an annual fee, which is held in escrow until the road needs to be resurfaced.
  • The Appraiser must flush the toilets and operate a sample of faucets to observe water pressure and flow, to determine that the plumbing system is intact, that it does not emit foul odors, that faucets function appropriately, that both cold and hot water run, and that there are no readily observable evidence of leaks or structural damage under fixtures.
  • The Appraiser must observe the foundation and perimeter of the buildings for evidence of wood destroying pests.  Pest Inspections and Septic Inspections for FHA and USDA Home Loans are always required when the appraiser calls for it within the appraisal report.  For instance, if the appraiser noticed wood rot, they will call for a Termite report.
  • One almost sure-fire way for a Well Inspection to be required on a FHA Loan, is if the Well and Septic are less than 50′-0″ apart as well as a special exception from FHA.
  • The Appraiser must examine the water heater to ensure that it has a temperature and pressure-relief valve with piping to safely divert escaping steam or hot water.
  • If the structure was built before December 31,1978, there’s likely to be a lead paint issue.  This means that even if a detached garage appears to have flaking paint, it will need to be repaired.
  • The Appraiser must report if the roof has less than two years of remaining life, and make the appraisal subject to inspection by a professional roofer.

If you have questions about Structural Requirements for FHA Loans, please call Steve and Eleanor Thorne 919 649 5058.  We work NC Home Buyers and have access to great first time home buyer programs!

Originally posted at NCFHAExpert

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