The FHA Appraisal Process: A Step By Step Guide

fha appraisalOnce the Federal Housing Administration (FHA) agrees to insure you real estate property loan and you identify the property you want to buy, the next step in the approval process is the FHA appraisal of the property you intend to buy. The two main goals of the FHA appraisal process are to establish that the property is safe and to determine the market value of the property for purposes of the sale.

With that in mind, here are the typical stages of an FHA appraisal.

Order an FHA Appraisal

As of February 2010, FHA-approved lenders are no longer in control of the FHA appraisal process. Currently, before the FHA appraisal process begins, an FHA-recognized appraisal management company must order an FHA-approved appraiser to appraise your property. The fact that lenders have minimal contact with FHA appraisers during the appraisal process enables the appraisers to make an unbiased evaluation of the properties in question. You can ascertain whether the appraiser appointed to evaluate your home is FHA-approved by reviewing the list of approved appraisers on the Federal Housing Administration website.

FHA Appraisal: A Property Tour

The first task an appraiser has to complete during the FHA appraisal process is to view the property you intend to purchase. As per the guidelines of the appraisal process, the appraiser should place special emphasis in determining if the property is safe. However, it is vital to note that an FHA appraisal does not go into much detail as a home inspection and you should still hire a property inspector to identify conduct an in-depth investigation on any the structural and safety concerns of the property before buying it.

Besides safety, an FHA-approved appraiser also identifies any problems that may affect the value of the property such as poor sewage drainage or a leaky roof. Upon identifying such problems, the appraiser may recommend a reduction in the value of the property before the FHA approves it or advise you to ask the seller to fix the problems.

FHA Appraisal: Gathering Documentation

During the FHA appraisal process, an appraiser must gather documentation including photographs of the property, both the interior and exterior. In addition, the appraiser must make sketches of the property’s floor plan and make an outline detailing the location of all the interior appliances in the home. As part of the documentation process, the appraiser also evaluates the remaining estimated life of the property and documents it. The appraiser attaches these sketches and photographs to your property approval forms and files them with the FHA.

The Valuation Process of an FHA Appraisal Process

As mentioned earlier, one of the key roles of an FHA appraiser during the FHA appraisal process is to determine the value of the property you intend to buy. In order to fulfill this role, the appraiser can use several valuation strategies. For instance, the appraiser can use a cost approach by determining the amount required to build a similar property. Another common valuation approach is sales comparison. Using this approach, an FHA appraiser compares your property to about three similar properties sold recently in the same neighborhood and adjusts the value based on how close your property is to various amenities in comparison to the other properties. Finally, an appraiser can use an income approach in the valuation process of your home. Using this approach, the appraiser estimates the monthly rent of your property based on the current rent rates and uses these estimates to value the property. It is important to note that FHA appraisers use the income valuation approach in FHA appraisal cases where a property buyer intends to use the property for rental purposes.

FHA Appraisal: Conclusion

Once an FHA appraiser sets the property value and completes the documentation and valuation stages, the FHA appraisal process is effectively complete. It is important to note that the value of the property, as determined by the appraiser during the FHA appraisal procedure, may not necessarily match the price set by the property seller. However, your lender will most likely use the final figure set during the FHA appraisal process to set lending limits.

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