If you use an FHA-insured home loan to buy a house, the property you purchase will have to be appraised by a HUD-approved home appraiser. The FHA appraisal process serves two main purposes:
It determines the current market value of the house, based on recent sales in the area. It also determines whether or not the home meets HUD's minimum property standards.
Below, you will find an overview of FHA appraisal requirements and guidelines for 2024, based on current policy handbooks and other official guidance.
A home appraisal is an expert assessment of a residential property designed to determine its current value (or how much it's worth in the current market). Whenever a mortgage loan is used to buy a house, the bank or lender will have the home appraised to find out how much it's worth based on current market conditions.
They do this mainly to protect their investment. In a typical home-buying scenario, the lender invests a lot more money than the borrower does. This is especially true for FHA loans, where the borrower can put down as little as 3.5% of the purchase price.
All types of mortgage loans require an appraisal. That includes FHA, VA and conventional financing. But in all cases, the overall goal is the same. The lender wants to make sure they're not lending more than the home is actually worth.
To determine market value, a licensed appraiser will review similar homes that have sold recently in the same area as the subject property. These are commonly referred to as comparable sales or "comps." The appraiser will likely visit the home being purchased as well, to evaluate the property inside and out.
After this thorough investigation, the appraiser will write a report to detail his or her findings. This report will include an estimated value of the home. The report will then be sent to the mortgage lender for review and further action.
Most mortgage programs require a home appraisal to determine the market value of the property being purchased. But FHA home appraisals differ from those used for conventional or "regular" mortgage loans in one important way:
But even though the FHA home appraisal requires an evaluation of the property's condition, it's technically not a home inspection.
As it states on the HUD.gov website:
"An appraisal is different from a home inspection and does not replace a home inspection. Appraisals estimate the value of the property for lenders. An appraisal is required to ensure the property is marketable. Home inspections evaluate the condition of the home for buyers."
The HUD-approved property appraiser must examine many aspects of the home being purchased, to make sure there's nothing that might endanger the health and safety of the new occupant.
"Health and safety."
This phrase is used repeatedly within the official FHA appraisal guidelines for 2024, and it underscores the overall purpose for the appraisal. This process is designed to ensure that the home being purchased is both safe and habitable, without any dangers to the new occupant.
The minimum property requirements (MPRs) for an FHA loan are quite lengthy and detailed. They can be found in HUD Handbook 4000.1, also known as the Single Family Housing Policy Handbook.
Below, we've provided and overview of the FHA appraisal guidelines for 2024, highlighting the most important checkpoints a home buyer should know about:
In the context of FHA home appraisal requirements, a "living unit" is basically a house where the occupants reside (as opposed to a shed or detached garage).
According to HUD guidelines, mortgage lenders must confirm that living units contain:
The FHA appraisal guidelines listed above all have something in common. First and foremost, they are designed to protect the health and safety of the occupant. Additionally, they help ensure that the home will be marketable, in the event that it has to be resold due to foreclosure.
For a more detailed checklist of FHA appraisal guidelines, refer to the 2024 version of HUD Handbook 4000.1. You'll find it on the HUD.gov website in both PDF and web formats.
There's a common misconception that FHA appraisals are unnecessarily strict or rigid, and that any inspection "hits" will end your chances of getting a loan. But this is inaccurate.
The truth is that most of the common discrepancies identified during the appraisal process are entirely correctable. Some issues, like peeling lead-based paint, can be fixed with minimal cost and effort.
If the seller, listing agent, or some other party corrects the discrepancies, the appraiser can make a second visit to review those fixes. If the appraiser is satisfied with the repairs, the loan can still move forward—which is what everyone wants.
The "deal breakers" tend to be serious issues that cannot easily be corrected:
In the above examples, the appraisal discrepancies (A) create health and safety conditions for the occupant and (B) cannot be easily fixed. These are the types of issues that send FHA loans off the track.
The official FHA appraisal guidelines for 2024 state this clearly: "Required repairs are limited to those repairs necessary to preserve the continued marketability of the property and to protect the health and safety of the occupants."
A lot of home buyers have questions about the timing of the appraisal, and how it fits into the broader mortgage and home-buying process. So let's talk about that next.
The FHA loan and appraisal process can vary slightly from one borrower to the next. But it usually follows the steps outlined below:
The time it takes to complete these steps can vary from one transaction to the next. For example, in some parts of the country a shortage of qualified appraisers could cause delays in the FHA home appraisal process. Other variables can affect the timeline as well, including real estate market complexities or issues with the property itself.
Here are some of the most frequently asked questions (FAQs) relating to home appraisal guidelines and requirements for FHA-insured mortgage loans.
In a typical real estate transaction, usually the home buyer who pays for the appraisal. This is true for FHA and conventional mortgage loans alike but like most things in the real estate world, this is negotiable. A seller or even a mortgage lender could cover the cost of the appraisal, if it's agreed to in advance.
The cost of an FHA appraisal can vary depending on several factors, but it generally falls between $300 and $600.
There are also variations as to how and when the appraisal fee is paid. It can either be paid upfront (when the actual services performed) score rolled into the borrowers closing costs.
FHA loans are insured by the capital Federal Housing Administration, which is part of the Department of Housing and Urban Development (HUD). So, ultimately, it's HUD that determines and enforces all appraisal guidelines for FHA home loans. As mentioned above, the official requirements can be found in HUD handbook 4000.1.
The duration of an FHA appraisal can vary depending on factors such as the property's location, complexity, and the appraiser's workload. However, in most cases, an FHA appraisal typically takes anywhere from a few days to a couple of weeks to complete.
How long does it take to reach closing after the appraisal?
Once the appraiser has completed the home appraisal, it typically takes another 2-3 weeks on average to reach the final closing. That's because there are still several steps involved in finalizing the loan and getting everything ready for signing.
Additional steps that can take place before the closing:
The mortgage underwriting process partly determines how long it takes to reach closing, after the FHA home appraisal has been completed. Some borrowers sail through this process with no issues, while others might have to provide additional documents, letters of explanation, etc.
If the home appraiser determines that the house is worth less than the buyer has agreed to pay for it, the buyer essentially has four options.
They can (1) attempt to renegotiate the sale price with the seller to reflect the appraisal, (2) challenge the appraisal by providing relevant market data, (3) cover the difference out of pocket, or (4) walk away from the deal.
Note: A home appraisal contingency can protect your earnest money deposit in this situation, allowing you to back out of the deal while retaining your deposit.
FHA appraisals used to be valid for 120 days, with the possibility of a 30-day extension. Some websites still include this outdated rule. But in 2022, HUD changed this guideline by extending the validity period and eliminating the 30-day extension.
According to the HUD announcement: "This Mortgagee Letter (ML) increases the Federal Housing Administration (FHA) initial appraisal validity period to 180 days from the effective date of the appraisal."
Additionally, if the appraisal gets updated after the initial report, it can be valid for 240 days to one year. But in most cases, the 180-day rule applies.
Most of the information presented above comes from HUD Handbook 4000.1 (a.k.a., Single Family Housing Policy Handbook). You can learn more about the home appraisal requirements for FHA loans from that handbook, or by contacting the agency directly.
Disclaimers: Every mortgage transaction is different, because every borrower is unique. As a result, portions of this guide might not apply to your particular situation. This information is intended for a general audience and does not constitute financial advice.
