Hi, I’m Warren Oberholser. I’m a realtor in the East Bay Tri-Valley area in Northern California. My goal is to help both buyers and sellers get maximum results for one of their biggest investments, their home.
Are you using an FHA loan for your home purchase? In this BLOG, I’m going to discuss what steps you can take if your FHA appraisal comes into low!
If you’re in the market to buy a new home and you’re considering using FHA financing for your next purchase, you’re not alone. Although the conventional loan is still the most popular, FHA is ideal for those with credit or financial challenges. Because the loan is guaranteed by American taxpayers, standards differ a bit for conventional loans. One of the biggest differences is the appraisal process.
I receive a lot of inquiries from home buyers and especially first-time home buyers. One of the questions they want to know about is, ‘FHA financing’. Since I get so many questions about this aspect of the FHA-backed loan, I thought I’d devote this BLOG to clearing up the confusion.
Let’s start with the appraisal in a nutshell
The home appraisal process is one objective. To determine an estimate of the current market value of a property. Just as you wouldn’t sell your used car without consulting the Kelly Blue Book or another evaluation guide, so a lender wouldn’t lend money to purchase a home without knowing the home’s value. Appraisals are performed by unbiased professionals that are hired by the lender. The appraiser will visit the home and inspect both the interior and exterior before comparing it to similar sold comps in the area.
The FHA appraisal
It’s important to understand that an appraiser that’s being used for home purchase for an FHA loan, must be an FHA-approved appraiser by the US Department of Housing and Urban Development.
Aside from coming up with an estimated market value, the appraiser also checks that the property is in compliance with the US Department of Housing and Urban Development Standards for Safety and Health.
These standards include:
- All stairways in and outside the home must have handrails.
- There must be at least one closet in each bedroom.
- The home must be free of structural problems.
- Each bedroom must have both access and egress to the outside of the home.
- The appraiser will ensure that the lot is graded to slope away from the home. This prevents moisture from intruding into the basement or foundation.
- The appraiser will also check for the presence of lead-based paint if the home was built prior to 1978.
- The HVAC system must be in good working order.
Any of these requirements that aren’t met during the appraisal inspection must be remedied before the FHA will guarantee the loan.
What if the FHA appraisal is low?
If the FHA appraised amount is less than what you agreed to pay for the home, you still have options. The three most common scenarios are as follows.
Number One: Request that the seller reduces the price to the appraised value. Yeah, many homeowners will balk at this, however, an experienced listing agent will explain to you that no matter who buys the home, if they’re not paying cash, they will need to get a loan and the loan requires an appraisal.
Number Two: There is a good chance the next appraisal will be the same or close to the amount that the appraiser determined. Increase the amount of your down payment.
Number Three: The buyer walks away from the purchase.
Now, what if you suspect an appraiser made a mistake?
Ask your realtor to run the comps again. If they feel the value is higher than what the appraiser estimated, if the appraiser clearly made a mistake, you may be able to appeal to the FHA. Unlike conventional loans and appraisals, the FHA has the sole discretion to say “yay” or “nay” to an appeal.
You’ll need solid documentation of the mistakes you’re claiming. Keep in mind, even with the weight on your side, you may not be granted an appeal, but it’s worth an attempt. Best to speak to your lender about how to start the process and if it’s possible, try to enlist the lenders backing of your claim.
I hope this BLOG gives you a better understanding of an FHA loan and especially the appraisal process. For any specific questions, please reach out to a loan agent. If you don’t have anybody specifically, you may want to use Brian Lebars from Vintage Home Loans in Pleasanton.
I hope you enjoyed this article. Please let me know if you have any questions. Warren
Hello…I work with both buyers and sellers in the Tri-Valley area of Northern California. The Tri-Valley is comprised of 6 cities: Pleasanton, Livermore, Dublin, San Ramon, Danville, and Alamo. To better understand what each city has to offer, I have created a Pros and Cons video and BLOG for each – (Pros & Cons for Pleasanton, Pros & Cons for Livermore, Pros & Cons for Dublin, Pros & Cons for San Ramon, Pros & Cons for Danville and Pros & Cons for Alamo). If you are thinking about purchasing or selling a home, please reach out to me by text, phone, or email. If it is convenient, I can schedule a Zoom chat so we can discuss your home goals. Wishing you all the best on your home journey. Cheers!
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