“Getting a Federal Housing Administration or FHA loan approval also requires passing the FHA loan inspection besides the typical home appraisal. FHA loans inspections ensure that a property meets the US Department of Housing and Urban Development’s (HUD) minimum safety, security, and soundness standards. This article presents a comprehensive guide on FHA loans inspections and FHA minimum property requirements. It also discusses the checklist of key details that the HUD-approved appraisers are more concerned about.”
In a typical mortgage transaction, the property bought by the homebuyer would normally serve as collateral for the loan borrowed. But before approving the loan money, the mortgage lender will require performing an appraisal of the home value as well. This will ensure that the collateral property is worth the selling price.
And while the above-mentioned describes a typical procedure in a mortgage transaction, not all mortgages require only this. A few specific mortgage types, such as an FHA loan, require conducting an extra process as well, commonly known as FHA loan inspection.
What is an FHA loan inspection?
An FHA loans inspections is an in-depth examination of the property that the homebuyer (borrower) is interested in buying with the mortgage money. It includes doing a thorough and critical evaluation of several key features involving the safety, security, and soundness of the property.
The US Department of Housing and Urban Development (HUD) mandatorily requires doing FHA loans inspections before approving an FHA loan. For an FHA loan to get approval, a home must meet the minimum property requirements of safety, security, and soundness standards as set by the HUD.
FHA loans inspections are conducted by property appraisers who are licensed and HUD-approved. This means that in the case of an FHA loan, property appraisers have two distinct goals during their visit. They not only perform an appraisal to figure out the home value but also conduct a thorough inspection of the property to check if it meets the safety and health guidelines of the HUD.
Understanding the differences and similarities between FHA loans inspections and appraisal
Depending on the type of mortgage applied for, a loan applicant may have to only get an appraisal or in some specific cases, an inspection as well. Getting an FHA loan approval requires both FHA loans inspections and appraisal.
But before getting these done, it is important to understand the key differences and similarities between the two. Not knowing this critical information can make it difficult to separate one from the other.
Keep in mind that both FHA loans inspections and appraisals supply valuable information about the property. Their outcome could not only affect the FHA loan approval process but could also affect the homebuyer’s decision.
How are FHA loans inspections different from an FHA appraisal?
Before moving forward, it is important to explain – what is the difference between an FHA home inspection and an FHA appraisal? While it can be confusing to understand the difference between FHA loan inspections and FHA appraisals, it is quite simple.
An FHA loan inspection is concerned with the home’s condition, ensuring that it meets the minimum safety, security, and soundness standards. On the other hand, an FHA appraisal is merely concerned with the home’s value, ensuring that the home has enough value to secure the loan.
Remember that generally, a licensed HUD-approved appraiser performs both the FHA loans inspections and FHA appraisal. However, there is a slight difference between the two and not all mortgage types require both.
While in most mortgage types, an appraisal is the only important thing that is needed, in the case of an FHA loan, FHA loans inspections is an equally important concern.
What are the similarities between an FHA loans inspections and an FHA appraisal?
While there is a technical difference between FHA loans inspections and FHA appraisal, there are also some similarities between them. These include –
- Although they may draw different conclusions based on their findings, both FHA loans inspections and appraisals include conducting a detailed examination of the interior and exterior condition of the home.
- Besides helping lenders in deciding whether to approve an FHA loan or not, both FHA loans inspections and appraisal help the buyer in making the right decision and getting the best out of the deal.
- It is the buyer that typically pays for both the FHA loans inspections and the appraisal.
Purpose of FHA loans inspections
As a matter of fact, FHA loans inspections serve a few key purposes favoring both the lender and the buyer in many ways.
Why is an FHA loans inspections important for a lender?
For mortgage lenders, their biggest concern is to recover the mortgage amount through repayments or if needed, by selling the property in case of a foreclosure. Remember how we briefly mentioned that the property in a mortgage transaction serves as collateral.
Hence, FHA homes inspections ensure that the property is in a fit condition – with regards to safety, security, and soundness standards as set by the HUD – and will, therefore, in case of a foreclosure sale, be able to recover the loan amount or even secure a higher price.
How do FHA loans inspections protect the homebuyer?
Another key purpose that FHA loans inspections offer is to protect the homebuyer’s interest. Information revealed during the FHA loans inspections process can help the homebuyer make a better decision.
For instance, a homebuyer could further negotiate the price of the property keeping in view the number of necessary repairs required as found by the appraiser during the FHA loans inspections. Likewise, he could also ask the seller to make the necessary repairs and rectify the faults before officially closing the sale. In simple words, an FHA loans inspections releases a homebuyer from the burden of having to spend additional funds to bring a property into livable condition after they have bought it.
Finally, a homebuyer, depending on the findings of an FHA loans inspections report, could always walk away from the current property and look for better and more desirable options.
FHA loan inspection checklist – Understanding the FHA’s minimum property standards
Before moving toward discussing the FHA loans inspections checklist, it is important to first review the FHA loans inspections process.
How does an FHA loan inspection process work?
The FHA loans inspections require a property to pass the minimum property standards of safety, security, and soundness – as set by the US Department of Housing and Urban Development (HUD). These inspections on the property are conducted by a licensed HUD-approved appraiser.
During the FHA loans inspections, the appraiser or inspector does a thorough examination of the property to ensure that the property conforms to the FHA’s minimum property requirements. The appraiser reports his/her observations of the property’s condition on the FHA’s appraisal form.
Depending on the type of property being inspected, the appraiser must use the relevant FHA appraisal form. For instance, the Uniform Residential Appraisal Report is used for single-family detached homes. Similarly, the Condominium Unit Appraisal Form is used to report the FHA loans inspections details of a condominium.
While some contents on all the forms might be the same, variations do exist to suit the specific type of property being inspected. Examples of basic questions required to be filled out on the FHA appraisal form include describing the area and location, square footage, number of rooms and stories, etc. Examples of specific-natured questions related to the property type include mentioning common areas, the number of owner-occupied units, homeowner association, etc.
After performing the inspection, the appraiser will pass the FHA appraiser form to the lender. The lender at this stage will evaluate the form details before approving.
However, if any potential issues, defects, or adverse conditions are identified during the FHA loans inspections due to which the appraiser may consider the property to be uninhabitable, the FHA requires the homeowners to take necessary actions and correct all problems before closing the sale.
What does the HUD require an appraiser or inspector to look for in a property during the FHA loan inspection?
Here is a comprehensive list of issues and areas to which the appraiser will pay special attention during the FHA loans inspections.
1. Electrical and heating
- No exposed or worn wiring. Also, no uncovered or open junction boxes.
- Have a properly working and functioning heating source in each inhabitable room (with certain exceptions for cities that experience mild winters).
2. Roofing and attics
- The roofing must be able to prevent moisture from coming in.
- The roofing must have a remaining life span of at least two more years at the time of FHA loans inspections.
- Examining the attic to detect the possibility of roof problems.
- The roof cannot compose more than three layers of roofing.
- The FHA guidelines require installing a new roof if, during the FHA loans inspections, the appraiser discovers that the roof needs necessary repairs, and the roof is already composed of three or more layers of roofing.
3. Water heaters
Having a water heater with a working temperature and pressure relief valve which adheres to the local building standards.
4. Hazardous conditions and nuisances within close proximity
Another thing that the appraiser would be extremely concerned about is related to hazardous conditions and nuisances. If the property is situated within close proximity of an area subject to hazardous conditions and nuisances, it may not pass the inspection. While the list of such things in this category can be quite long, we have here mentioned a few of these to guide you –
- Having a landfill site or harmful waste site nearby.
- Existence of soil contamination.
- Sources of oil and gas located on the property.
- Passing of heavy traffic causing noise, airport noise, or other forms of excessive noise.
- Possibility of an explosion at a nearby site such as high-pressure petroleum or gas line.
- Having high-voltage power lines, or radio or TV transmission towers in the close proximity.
5. Structure quality and soundness
The overall structure of the property must be of sound quality to always ensure the safety of its occupants in the future. This includes checking the property for construction defects, leakages, dampness, decay, termite damage, etc. If any of these issues exist during the FHA loans inspections, immediate actions must be taken before closing the sale.
There must be a working (not broken or leaking) sink, toilet, and tub/shower available in the home. There must also be proper ventilation (a window or an exhaust fan) in the bathrooms.
If the appraiser finds asbestos that may seem damaged or appears to be deteriorating, the FHA requires conducting a further examination of such a situation by an asbestos expert.
8. Safe and adequate access to the property
Pedestrians and vehicles, particularly emergency vehicles must be able to access the property under all weather conditions.
What defects will the FHA home inspection appraiser overlook and won’t consider significant?
Despite the list above, several things may remain overlooked during the FHA loan inspection. This is because the FHA is less likely to consider minor cosmetic defects, delayed maintenance, and issues arising because of normal wear and tear.
This means that the FHA primarily emphasizes defects that could affect the safety, security, and soundness of the home. These minor defects include but are not limited to the following –
- Cracks or damages in window glass, exit doors, countertops, and other areas which are still operational.
- Minor plumbing faults or leaks such as dripping taps and faucets.
- Defective or poor-quality workmanship on floor finishes.
- Missing handrails.
In general, FHA loans are an excellent opportunity for homebuyers who are unable to qualify for other types of mortgages. However, an insight into the FHA loan process and its many aspects reveal a clearer side of it.
This means that while many homebuyers would qualify for an FHA loan, getting an FHA loan approval for your dream home is still full of challenges. In such a case, we always recommend hiring an expert and a professional advisor to guide you on the best options available in your situation.
At AttorneysFunding.com, we have a team of professionals who know exactly how to assist you through the complexities of finding the right property with an FHA loan. Whether it is getting an FHA loan approval or passing an FHA loan inspection, our experts can help you throughout the entire process.
Call us now at (916) 471-2678 or click here to book a free consultation session and discuss your mortgage needs with one of our expert loan officers.