Appraisals are necessary for all homes purchased with FHA loans. The home must be worth at least as much as the amount it’s being sold for. Otherwise, it’s too risky for the lender to move forward with the process. So what happens if a buyer is using an FHA loan and the home doesn’t appraise? Here’s what you need to know.
What Is an FHA Appraisal and How Does It Work?
An FHA appraisal is an assessment of two factors: 1) a property’s value and 2) the condition of the property. These inspections are conducted by licensed appraisers who are approved by the Federal Housing Administration (FHA). Appraisals are a mandatory requirement for FHA-insured loans.
The appraisal is intended to protect both the borrower and the lender by ensuring that the property is structurally sound and safe to occupy. It also confirms that the home is worth the amount it’s being sold for.
During the FHA appraisal process, the appraiser will inspect the property’s interior and exterior. They will assess various aspects such as the property’s overall condition, the functionality of major systems (e.g., electrical, plumbing, heating), the quality of construction, and any health and safety issues.
The appraiser will also compare the property to similar homes in the area to determine its market value. Additionally, the appraiser will check if the property meets certain FHA guidelines, which may include requirements related to property type, accessibility, and certain property features.
What Happens if an FHA Appraisal Comes in Low?
Waiting to hear back on an FHA appraisal can be nerve-wracking. With an FHA loan, the home must appraise for at least the amount it’s being sold for. If it doesn’t, the lender may not be willing to put out the full amount of the purchase price.
But don’t worry just yet. A low appraisal isn’t a total deal-breaker. You still have options. You may be able to use cash or another form of financing to cover the rest of the cost. Or, you can try to negotiate with the seller and ask them to lower the price.
If all else fails, you can back out of the purchase completely and simply look for another home. In this case, try to keep things in perspective. Sure, you’d love to buy the home, but there are other great homes out there. Chances are, you’ll find another one you love just as much, if not more.
Have Questions? We Can Help!
If you have questions about FHA loans or home appraisals, feel free to give us a call. Our staff will be more than happy to assist you and provide you with the information you need.