FHA appraisals require stricter property condition standards than conventional appraisals because FHA insures the loan and wants to protect both borrower and lender. FHA mandates that the home be structurally sound, safe, sanitary, and weathertight -- conditions that conventional appraisals note but don't enforce as strictly.
Why Different Standards Exist
Conventional appraisals protect the lender's interest. The lender wants assurance the property is worth the loan amount.
FHA appraisals protect the borrower AND the lender. FHA is insuring the loan (borrower defaults, FHA pays the lender). So FHA has extra concerns about property condition, safety, and habitability.
Key FHA Requirements
Property condition matters more — FHA has minimum property standards. A house can be old, but it has to be:
- Structurally sound (no major foundation issues)
- Safe (electrical and plumbing functional)
- Sanitary (no pest damage, mold, or hygiene issues)
- Weathertight (roof protecting the structure)
A conventional appraisal might approve a home with deferred maintenance. FHA might require repairs before approval.
Lead-based paint disclosures — For homes built before 1978, FHA requires lead-based paint disclosures. They don't require abatement, but they do require notice.
Pest and wood-destroying insect reports — Some FHA lenders require pest inspections in addition to appraisals, though the appraisal addresses obvious issues.
Property must be for primary occupancy — You can't use FHA to buy an investment property. It has to be where you'll live.
Manufactured housing and condos — FHA has specific rules. Not all manufactured homes or condos are FHA-approvable. I have to verify eligibility.
Appraisal Standards Comparison
Conventional appraisal: I inspect the property, document condition, use comparable sales analysis, and provide value. The lender reviews to assure it supports the loan.
FHA appraisal: I do everything above, PLUS I inspect against FHA Minimum Property Standards. I'm checking:
- Roof condition and age
- Foundation and structure integrity
- Electrical system functionality
- Plumbing system functionality
- HVAC system functionality
- Evidence of pest damage
- Evidence of moisture or mold
- General safety hazards
If I find issues, I have to note them. The lender might require repairs before funding.
Common FHA Findings
In my FHA appraisals, I commonly require:
Roof repairs or replacement — If roof is marginal (15+ years old, visible damage), FHA might require replacement or repair estimate before closing.
Electrical issues — Outdated systems, exposed wiring, missing breaker box covers. FHA wants these corrected.
Plumbing issues — Non-functional fixtures, corrosion, leaks. Functional plumbing is required.
Structural issues — Foundation cracks (minor ones are fine), settling (minor is fine), but major structural issues are problems.
Paint hazards — Lead paint in homes pre-1978 must be disclosed. Loose, peeling paint in pre-1978 homes is a concern.
Pest damage — Evidence of termites, carpenter ants, rodents. If present, a pest report and treatment plan are required.
Mold or moisture — Any evidence of mold or moisture issues must be addressed.
The Appraisal Report Differences
Conventional appraisal: Standard form (1004 form). Value conclusion is the main focus.
FHA appraisal: Form 2055-B (or equivalent). Includes:
- Minimum Property Standards checklist
- Itemized property condition assessment
- Identification of any issues requiring repair
- Statement of whether property meets FHA standards
- Value conclusion
The FHA form is more detailed about condition and compliance.
Repair Requirements
If I identify issues in an FHA appraisal, the lender will typically:
- Require repair documentation — Estimate for repairs from licensed contractor
- Require repair completion — Repairs must be done before closing (usually)
- Re-inspect if major — For significant repairs, I might need to re-inspect
This can delay closing. If I find roof issues requiring $8,000 in work, that has to be done or funds won't release.
Which is Easier to Appraise?
Frankly, properties in good condition appraise easier for either type. New or well-maintained homes sail through both FHA and conventional appraisals.
Properties with deferred maintenance are tougher for FHA. A 40-year-old home that's still sound but showing age will appraise fine conventionally. But FHA might require repairs.
Borrower Perspective
If you're getting an FHA loan:
Get the property inspected before making offer — Know what you're inheriting. If major repairs are needed, that's a negotiation point.
Ask the seller for a pre-appraisal home inspection — Some sellers do this to show what needs attention.
Understand closing might be delayed — If FHA appraisal identifies repair needs, closing might push out while repairs are made.
Budget for repairs — If you're FHA-approved for $400,000, but appraisal requires $15,000 in repairs, you need funds for that.
Choose properties in decent condition — FHA works better on properties that are reasonably maintained.
My Recommendation
FHA loans are fantastic programs for first-time buyers and lower-down-payment situations. But understand the trade-off: stricter property standards mean properties must be in better condition.
If you're shopping with FHA financing:
- Have properties inspected by a home inspector before making offers
- Understand FHA will require certain repairs
- Budget for those repairs
- Choose properties in decent condition to avoid big repair lists
The appraisal will tell you what must be fixed. Be ready for that conversation.