FHA Home Loan Appraisals: Some Basics

FHA Home Loan Appraisals: Some Basics

In 2015, the FHA and HUD published HUD 4000.1, a new and comprehensive rulebook for FHA single family mortgage loans. This new set of rules updated, revised, expanded, and restated FHA single family mortgage loan policies. One area critical to the entire home buying process with an FHA mortgage is the appraisal process, so we are examining this process as described in HUD 4000.1 to give you a better idea of FHA/HUD policy as it now stands with the new rules.

HUD 4000.1 begins by defining its terms. The rules say the FHA appraiser is responsible for insuring a home to be purchased or refinanced (where an appraisal is required to refinance) meets FHA/HUD standards–Minimum Property Requirements (MPRs) and Minimum Property Standards (MPS).

“The Appraiser must observe, analyze and report that the Property meets HUDs MPR and MPS. Minimum Property Requirements (MPR) refer to general requirements that all homes insured by FHA be safe, sound, and secure. Minimum Property Standards (MPS) refer to regulatory requirements relating to the safety, soundness and security of New Construction.”

HUD 4000.1 adds, “Every Property must be safe, sound, and secure so that the Mortgagee can determine eligibility. The Appraiser must note every instance where the Property is not safe, sound, and secure and does not comply with FHAs MPR and MPS.”

Appraisal requirements may vary depending on whether the property is new construction, under construction, proposed construction, or existing construction. There is also a classification for property that has only existed for a short time–a year or less. How does HUD 4000.1 define each of these?

“Existing Construction (A) Definition

Existing Construction refers to a Property that has been 100 percent complete for over one year or has been completed for less than one year and was previously occupied.”

“New Construction (A) Definition

New Construction refers to Proposed Construction, Properties Under Construction, and Properties Existing Less than One Year.

Proposed Construction refers to a Property where no concrete or permanent material has been placed. Digging of footing is not considered permanent. Under Construction refers to the period from the first placement of permanent material to 100 percent completion with no Certificate of Occupancy (CO) or equivalent.”

“Existing Less than One Year refers to a Property that is 100 percent complete and has been completed less than one year from the date of the issuance of the CO or equivalent. The Property must have never been occupied.”

Depending on the nature of the property, you may find the appraisers requirement or recommendations to be unique to that type of construction. Existing construction, for example, may require corrections or repairs to defective conditions or to those which don’t meet FHA MPRs.

But an under construction property would only have to meet the MPR/MPS requirements once the project is finished–it’s obvious that if an appraisal happens before construction is complete there may be some things that don’t yet live up to state or local building code, but theoretically would after the job is done.