FHA and conventional appraisals used to have vastly different guidelines and requirements. Over the last few years, the industry as a whole has tightened appraisal guidelines, while FHA loosened theirs in 2005. These changes have blurred the once distinct line between FHA and conventional appraisal specifications.
One major difference is FHA maintains its own panel of approved appraisers. If an appraiser is not FHA certified, they are not permitted to complete an FHA appraisal. In addition, FHA requires the appraiser to do a more thorough inspection of the property. On a conventional appraisal, the appraiser is only required to complete the report “subject to” items that affect the safety, soundness, or structural integrity of the property.
Above and beyond these items, FHA has Minimum Property Standards that must be met in order for them to insure the loan. Though FHA emphasizes that an appraisal is not a home inspection, they do require additional reporting to verify the condition of the home. Due to this, an FHA appraiser must complete the appraisal “subject to” completion of any required repairs or inspections based on FHA MPS (minimum property standards). An appraisal completed “subject to” means there are items that must be completed prior to your loan closing. A final inspection will be necessary, which is an additional cost.
Let’s take a look at some items required in FHA appraisals vs. conventional appraisals:
All FHA appraisals will have a Case number, which is how HUD (housing and urban development) tracks the property for the life of the loan.
Attic and Crawl Space inspections are required for FHA but not conventional. FHA requires the appraiser to do at least a head and shoulders inspection of any attic or crawl spaces to observe and report any deficiencies. This is something you should know ahead of time if you’re applying for an FHA loan. You will need to provide access for the appraiser to view the attic and crawl space during the inspection – even if the attic is a scuttle located in a closet.
Peeling paint is another FHA requirement for any property built prior to 1978. If any paint on the interior or exterior is chipped or peeling, it must be repaired due to the possibility of lead.
Both FHA and conventional appraisals are required to be in UAD (uniform appraisal dataset)
FHA has its own panel of certified appraisers that must complete their appraisals, while Fannie Mae does not. FHA also has a longer, more detailed list of minimum property standards than conventional. And finally, both FHA and conventional require any health or safety hazards to be corrected prior to funding the loan.