FHA loan inspection and appraisal requirements: a guide

When people say they don't like FHA loans, they're often talking about the FHA appraisal and inspection process. They think the FHA inspection adds an extra layer of red tape that can slow the sale or stop the transaction altogether.

And they're not wrong, at least not completely. The FHA inspection and appraisal does add an extra step. It could stop a sale in its tracks.

But this step typically serves the buyer's needs, especially a first-time buyer who's learning how to navigate the mortgage process. An FHA appraisal, combined with a transparent lender like Better, can help buyers make solid investments. 

...in as little as 3 minutes – no credit impact

What is an FHA appraisal and inspection?

The FHA appraisal assigns a value to the home while also completing a basic health and safety inspection of the home. The process combines the valuation and inspection into one step.

You could think of the appraisal process as the home's application for a loan. Just like the borrower, who has to qualify for the FHA loan by meeting the credit score and income rules, the house itself has to qualify for the loan.

In the house's case, the property must be valuable enough to justify the loan amount, and it must be safe and sound so the buyer can move in right away without paying a lot to repair the home. 

Specifically, the house has to meet the Federal Housing Administration's minimum property standards.

FHA Minimum Property Standards (MPS) Checklist

To meet minimum property standards, or MPS, a home must be:

• Safe: The house is free of toxins (such as mold, dry rot, and exposed lead paint) and pests and rodents. It has safe and working electrical, plumbing, and HVAC systems. It can be accessed safely from a public street or road.
• Secure: The home has doors and windows that lock and can adequately shelter its residents from the elements.
• Sound: The home's foundation, walls, roof, and other structural elements are intact and working properly.

The home appraiser assigned to the loan file will make sure the meets these requirements. Most modern homes priced at or near market value meet these minimum standards.

FHA appraisal vs. traditional home inspection

Some FHA borrowers confuse the FHA appraisal with a private home inspection. This isn't true.

Though similar on the surface, FHA appraisals and home inspections have different jobs. The FHA appraisal checks the home for basic, minimum requirements. A home inspection digs deeper to find problems before they compromise the home's safety, security, and structural integrity.

For example, a home inspector might notice that the home's appliances or shingles will fail in a few years. This won't affect the mortgage loan, but it could shape the buyer's offer price. This kind of nuance wouldn't be part of the FHA's checklist. 

Why FHA doesn't require a full home inspection

The FHA appraisal checks the current state of the property for the current loan. An appraisal is good for 120 days. If the home doesn't close in that timeframe, the lender will have to order a new appraisal.

A full home inspection checks the current condition of the home with an eye toward the future. That way the borrower enters homeownership knowing more about the home. 

While the FHA does not require a full home inspection, most Realtors and loan officers will tell you to get one anyway. 

Role of the FHA appraiser

An FHA-approved appraiser wears two hats: valuation expert and compliance officer. Here's what they do:

• Determine the property's fair market value
• Verify the property meets minimum FHA standards
• Take photographs of the property to document visible defects or safety hazards
• Prepare a detailed report using HUD's standardized forms

An FHA condo loan's appraisal process could also include checking public areas of the condo complex.

The appraiser's assessment impacts the lender's decision to approve or deny your loan application.

...in as little as 3 minutes – no credit impact

How do FHA appraisals work?

The FHA appraisal process begins when you apply for an FHA-backed mortgage. FHA loans require only 3.5 percent down even when buyers have credit scores as low as 580. They're designed to help people with lower incomes and less credit history buy their own home.

Your FHA lender orders an appraisal from an FHA-approved appraiser who must follow U.S. Department of Housing and Urban Development (HUD) guidelines.

Appraisal costs vary by property size, location, and current demand for services. Expect to pay up to $750 or more on average.

The appraisal process follows a structured timeline

The appraiser schedules a property visit, usually within seven business days of assignment. During this visit, the appraiser examines the home inside and outside, taking photographs and measurements.

The appraiser also looks for comparable properties (comps) in your neighborhood that have sold recently to help find the home's market value.

The appraiser then uses all the data collected to prepare a report (Form HUD-92051) for the lender. This could take another week.

Then, with the appraisal report in hand, the lender knows whether the home meets FHA standards and how its value compares to the sales price. If the home meets minimum requirements and has enough value to match or exceed the sales price, the loan can move forward.

What happens if a home fails the inspection?

When a property doesn't meet FHA loan inspection requirements, the appraiser will include the reason in the report.

The problems cited in the appraisal report must be fixed before the Federal Housing Administration will insure the mortgage.

When this happens, most lenders create a "repair list" that must be completed to get the loan back on track. With this list in hand, the buyer can:

• Request that the seller make the repairs – Most buyers ask the home's seller to complete necessary work before closing
• Negotiate repair credits – Some sellers offer closing cost credits instead of making repairs themselves. That way the buyer can oversee the repairs.
• Pay for repairs personally – The buyer can handle the repairs after purchase (though some issues must be fixed before closing).
• Cancel the contract – If repair costs are excessive, the buyer can typically exit the transaction. If the contract includes [an appraisal contingency](https://better.com/content/appraisal-contingency), the buyer should get their earnest money back.

With most repairs, the mortgage can move forward only after an appraiser verifies all required repairs have been completed. This follow-up inspection, called a "compliance inspection," typically costs $100 to 150 and should be scheduled as soon as possible to avoid delays.

Most FHA appraisal issues are minor enough to be resolved through negotiation between the buyer and the seller, provided both parties remain flexible throughout the process.

What can cause a failed FHA home inspection?

Properties can fail FHA inspections for several reasons. Buyers can be on the lookout for these issues before making an offer, saving time (and possibly money) later.

Structural damage

Structural issues matter a lot to FHA appraisers. Properties will fail the inspection when they show:

• Foundation cracks wider than 1/4 inch
• Sagging rooflines or compromised support beams
• Significant settlement that threatens structural integrity
• Water damage affecting structural components

These problems erode safety, and they point to future expensive repairs in the future that could affect the home's value and the buyer's ability to repay the loan. 

Safety problems

Safety issues that commonly trigger failures include:

• Missing handrails on staircases with three or more steps
• Old or missing smoke detectors
• Exposed electrical wiring or improper connections
• Trip hazards in walkways
• Blocked emergency exits

Fortunately, many of these issues often have fast and cheap fixes. 

Sanitary problems

Sanitation concerns also warrant immediate attention. Properties fail inspections due to:

• Evidence of pest infestation, especially termites
• Sewage backups or inadequate waste disposal
• Non-working toilets or showers
• Contaminated water supply
• Mold growth exceeding acceptable limits

These issues can affect your health and the property's habitability.

Other problems

Beyond major categories, other issues cause FHA inspection failures:

• Peeling paint in homes built before 1978 (potential lead hazard)
• Standing water near foundations
• Non-working kitchen appliances
• Insufficient natural light or ventilation
• Properties located within FEMA flood zones without proper insurance

FHA appraisers scrutinize these issues carefully, as their responsibility involves protecting both the government's financial interest and your well-being as a future homeowner.

FAQs about the FHA loan inspection process

What are the key components of an FHA appraisal?

An FHA appraisal includes both a property valuation and a basic health and safety inspection. The appraiser finds the home's market value and verifies that it meets the FHA's minimum property standards for safety, security, and structural soundness.

How long does an FHA appraisal take?

About seven to 10 business days from start to finish. This includes scheduling the property visit, conducting the appraisal, and preparing the report. The appraisal remains active for 120 days.

How much does an FHA appraisal cost?

Expect to pay $500 to $750 or more for an FHA appraisal. The price could be higher for larger-than-average homes or for homes with hard-to-reach attics and crawl spaces that make the home take longer to inspect.

What are some common reasons a home might fail an FHA inspection?

Common reasons for failing an FHA inspection include structural damage (like foundation cracks), safety issues (such as missing handrails), sanitary problems (like pest infestations), and other issues like peeling paint in older homes or non-functional appliances.

Is a traditional home inspection still necessary with an FHA loan?

It's not required but most experts strongly recommend getting a separate, comprehensive home inspection in addition to the FHA home appraisal. The FHA appraisal focuses on obvious defects and safety hazards, while a traditional inspection evaluates the property's condition.

What happens if a property doesn't meet FHA standards during the appraisal?

If a property fails to meet FHA standards, the appraiser will note the deficiencies in their report. The lender will then issue a "repair list." Buyers can request that the seller make repairs, negotiate repair credits, pay for repairs themselves, or potentially cancel the contract if the issues are major.

Lender speed and transparency can make FHA appraisals go smoother

Yes, it's an extra step, but FHA loan inspection requirements also protect buyers from taking on someone else's problems. 

Most FHA appraisal problems can be resolved by acting fast to resolve the problems.

Working with an FHA lender that has a transparent loan process can help buyers react more quickly and solve minor problems before they become major obstacles.  

Better's transparent, streamlined loan process can help you stay on track.

...in as little as 3 minutes – no credit impact