FHA appraisal requirements ensure a property is safe, secure, and structurally sound, focusing on Minimum Property Standards (MPS) rather than just market value. The home must have a working, permanent heating system, a roof with at least two years of life remaining, safe utility access (water, electric, sewage), and be free from hazards like peeling lead paint, termites, or faulty electrical wiring.
FHA Appraisal Checklist
Major structural issues that are common FHA red flags include cracked or crumbling foundations, deteriorating roofs, and water damage. Other red flags that appraisers look for include: Missing handrails. Cracked windows.
An FHA appraisal can require repairs before the loan is approved. That's more strict than a conventional loan.
A red flag is going to be any major defect or safety concern, such as a leaky roof, mold, or structural damage. Remember, FHA appraisers are looking for obvious hazards and structural issues that could impact the home's habitability or long-term value.
The appraiser is required to make a thorough inspection of the attic and all visible roofing areas for signs of failing roofing materials and report all roofing deficiencies in the appraisal report. iii: HUD-FHA makes no guarantees or warranties as to the roof's condition.
Reasons for an FHA Rejection
There are three popular reasons – bad credit, high debt-to-income ratio, and overall insufficient money to cover the down payment and closing costs of a home.
The FHA 85% rule refers to a past guideline for cash-out refinances limiting the loan to 85% Loan-to-Value (LTV) and a specific rule for identity-of-interest transactions (like buying from family) where borrowers couldn't finance more than 85% of the home's value unless exceptions applied, such as renting from the family member for at least six months prior. While the general cash-out LTV is now 80%, the 85% rule still applies to certain related-party sales, requiring a 15% down payment unless an exception is met, notes FHA.com.
FHA appraisals are not generally appraised for a lower value, at least not in any way that can be proven reliably and not for any valid reason that we can think of. We have often heard complaints from Realtors about FHA appraised values being lower than appraisals performed for conventional loans.
The "3-day appraisal rule" refers to requirements under the Equal Credit Opportunity Act (ECOA) for mortgage lenders to provide borrowers with a free copy of the appraisal (and other valuations) at least three business days before loan closing, and to notify them of this right within three business days of application; borrowers can waive the pre-closing timing, but the lender must still provide it promptly. This ensures borrowers see the property's value before committing to the loan, though the lender must also provide it promptly upon completion, even if the loan doesn't close.
An FHA appraisal won't pass if a property has significant health, safety, or structural hazards, like a leaky roof, exposed wiring, missing handrails, mold, or a crumbling foundation, because the FHA ensures the home is safe and habitable; issues like peeling paint (especially lead-based), broken windows/doors, inadequate heating, or pest infestations also cause failures, requiring repairs before loan approval.
FHA appraisals are considered more rigorous than standard home appraisals. Whether you're refinancing or buying a house with an FHA loan – or you're a seller and your buyer is using an FHA loan – understanding FHA appraisals is key.
General safety issues - The house must not have any safety issues such as trip hazards, missing plumbing connections, unstable or dangerous structures, etc. (such as outbuildings). There should be proper handrails if there are stairs where this could be a safety hazard.
The 3-7-3 Rule in mortgages isn't a loan type but a federal timeline from the TILA-RESPA Integrated Disclosure (TRID) rule, ensuring borrower protection by mandating disclosures within 3 business days of application, a 7-business-day wait between the initial Loan Estimate and closing, and another 3-day wait if significant changes (like APR) occur, giving borrowers time to review costs before committing to a loan.
FHA appraisal red flags buyers might not expect
A lot of what fails an FHA inspection is generally pretty logical: older, unmaintained roofs, broken windows, exposed or faulty electrical, potential lead paint hazards, unsafe steps, barely working heat.
When talking to a home appraiser, avoid pressuring them for a specific value, asking them to ignore issues, or trying to control their process, as this can be seen as manipulation; instead, provide factual details about upgrades and unique features while remaining polite and objective, letting them do their job. Don't say things like "I need it to appraise for X," "Zillow says my home is worth..." or "Can you leave out the short sales?" because appraisers must stay impartial and can be removed for undue influence.
The main factors that can hurt a home appraisal include undone but needed updates and repairs, the price of comparable properties, market conditions, your home's location, and whether you hired an inspector to flag issues or necessary repairs.
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