FHA Appraisal Issues

One reason I was brought on board here at AG is because I’m both a Realtor and Certified Residential Appraiser. In the 8 years and 2,000+ homes I’ve inspected I’ve seen the good, bad and everything in between. A few years ago FHA loans were rarely used. But now with their low down payment requirements and nearly all the crazy programs gone they have become a lending staple again. FHA appraisal inspections are more detailed and there are some commons issues that I see when inspecting homes:

Mechanical Systems Check

Let’s face it – foreclosures are a big part of nearly every market area. So many of my FHA appraisals lately have been on lender owned properties. Here in frozen tundra (Minnesota & Wisconsin) foreclosures are almost automatically winterized, even in the middle of summer. For you warm-weathered readers this process involves shutting off water and pumping anti-freeze into the pipes, turning off the gas or setting the furnace to somewhere around 50°, and sometimes turning off the electric.

Since FHA appraisal inspections are more thorough they require a test of all mechanical systems. Do you see the train wreck coming? When lenders are already loosing thousands of dollars on a property, getting them to spend money on having someone de-winterize the property isn’t always easy – but it is required.

Lead Based Paint

If a home was built before 1978 and has chipping, flaking or peeling paint it has the potential of being lead based. This means both the interior and exterior of the home, including surfaces on fences, detached garages, storage sheds and other out buildings.

Patio Block Stop

I probably just lost 1/2 the readers here, but hang with me for a moment. In my market area split level homes are as common as -20° wind chill in February. Take a look at the photo to the right (click for a larger view). I’m talking about the patio door on the upper level above the ledger board – where a deck should be but the prior owner couldn’t afford the mortgage let alone spend money on improvements. This goes into the FHA safety category where someone could open that door and be injured falling down to the ground. Obviously having a deck is more aesthetically pleasing, but the more economical solution is to screw a wood block into the track of the door so it can only be opened a couple inches.

FHA’s rule of thumb is that any required repairs should preserve the continued marketability of the property and protect the health and safety of the occupants – or the three S’s:

• Safety: protect the health and safety of the occupants
• Security: protect the security of the property (security for the FHA insured mortgage)
• Soundness: correct physical deficiencies or conditions affecting structural integrity

What are some common FHA appraisal issues in your area?