FHA loan inspectors (appraisers) evaluate properties to ensure they meet HUD’s minimum standards for safety, security, and structural soundness. They look for issues like structural defects, leaky roofs, non-functional heating/plumbing/electrical systems, peeling paint in homes built before 1978, and safety hazards, rather than cosmetic repairs.
The requirements for FHA and VA aren't that strict. You need a heater, running water, no obvious safety issues and no habitability issues. I've done thousands of these transactions and less than 1% have corrections. It's important to note that a home won't fail the inspection.
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 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.
The appraiser must be able to see the attic and crawl space. They are required to make at least a "head and shoulders" inspection of these areas. They look for evidence of water damage, poor ventilation, or structural problems. All utilities must be on or turned on during the appraisal.
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 Appraisal Checklist
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.
Water damage can be the most expensive of all the major issues a home inspection may encounter because it can cause so much damage. If you leave for the weekend and come home to a pipe burst, you will most likely be looking at tens of thousands in damages and restoration.
While FHA appraisals have a reputation for being strict, if the home is in relatively good condition and well-maintained, it's more likely to be approved. If major systems work as they should and there aren't any big safety concerns, recommended fixes are often inexpensive and easy to complete before closing.
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.
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.
For a $400,000 house, your down payment can range from $0 to $80,000, depending on the loan type and your financial situation, with 3.5% ($14,000) for FHA loans, 3% ($12,000) for conventional loans for some first-timers, or 20% ($80,000) to avoid Private Mortgage Insurance (PMI) on conventional loans, while VA and USDA loans can offer 0% down for eligible buyers.
Mortgage Approvals & Debts
Your total debt load plays a crucial role in determining whether you qualify for a mortgage and how much you can borrow. A high level of debt can either reduce the amount a lender is willing to offer or lead to outright rejection.
Deep Clean Every Room
A clean home is essential to make a strong impression on visitors. Even minor dust or grime can be a major turn-off during an inspection. Focus on High-Use Areas: Kitchens and bathrooms should be spotless. Deep clean countertops, appliances, sinks, toilets, and showers.
Top 10 Reasons Vehicles Fail Inspection: