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FHA Appraisal VS. Home Inspection

An FHA appraisal is not a substitute for a professional home inspection . In fact, they have some key differences.

A licensed appraiser approved by the Fair Housing Administration (FHA) performs FHA appraisals. The primary purpose of an appraisal is to establish the fair market value of a home so that the lender knows the home is worth at least the purchase price. An appraiser does not look at the home from top to bottom. They perform a general inspection only, with the main focus on the size of the home and the purchase price of comparable homes in the area that have sold within the prior six months. The secondary concern is the overall condition of the home in reference to very specific issues.

FHA-insured properties must be safe, sanitary and structurally sound to meet minimum property standards laid out in FHA guidelines. If it does not, the FHA will not supply mortgage insurance for the loan. Since an FHA loan is contingent on the FHA supplying insurance, the lender will not approve the mortgage until the seller brings the home up to FHA standards, and the appraiser reinspects and passes the home. Unless a home has a major issue that makes it unsafe, unsound or unsanitary, the FHA is not concerned with the condition of the home.

Alternatively, a home inspector has an obligation to inform his customer, the potential buyer, everything about the condition of the home; from ripped carpet or leaky faucets to major roofing or plumbing issues. Just because minor issues may not affect the safety of a home does not mean they do not require costly repairs. A potential buyer could discover in an inspection report that the home is not in the condition she was led to believe, and therefor change her mind about purchasing. For this reason, many home purchase contracts contain special language that makes the contract contingent on the findings of a home inspection and allow for negotiation of repair costs or purchase price.

Become more informed by discussing these topics with your lender and/or your EB Real Estate REALTOR®.

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