You’ve found a home that you’re ready to make yours, and now it’s time for the FHA appraisal. Your anxiety kicks in. What if the home fails? Will you have to start the search all over again?
The FHA appraisal is designed to protect buyers, but it can feel like a roadblock to your dream home if you’re in the dark about what the process entails. Wouldn’t it be great if you knew what to avoid during the house-hunting process to help predict whether a home would pass the FHA appraisal?
You should know that you’re not entirely powerless. As it turns out, there are some things that you can look for, and they’re known as the FHA minimum property standards.
What are FHA Minimum Property Standards (MPS)?
Minimum property standards, or MPS, are standards set by the Federal Housing Administration (FHA) that require all properties financed through the FHA loan program to be safe, secure, and sound. But what specifically falls under each of those categories? Let’s take a look!
- Safe: The property should be structurally sound and free from hazards that could pose a risk to the occupants. This includes ensuring that the roof, walls, and foundation are in good condition and that there are no major safety concerns, such as exposed wiring or unstable flooring.
- Secure: The property should provide a secure living environment. This includes having functioning locks on all exterior doors, windows that can be opened and closed properly, and adequate lighting in common areas/entrances.
- Sound: The property should be free from significant defects affecting its value or habitability. This includes checking for issues such as water damage, plumbing or electrical problems, and issues with the HVAC (heating, ventilation, and air conditioning) system.
Pretty great, right? Minimum property standards are designed to give families confidence and security about their investments. But safety, security and soundness are just the core tenets of the MPS. The FHA has an entire handbook dedicated to the nitty gritty breakdown of what is and isn’t acceptable for a property. The handbook provides guidance for everything from site design to construction, which is why FHA appraisers exist, to make the process easy.
Who enforces FHA minimum property standards?
FHA-approved appraisers enforce minimum property standards. Not only do they ensure that the property meets FHA standards, but they also determine the home's market value. The FHA trains and authorizes appraisers to evaluate properties and ensure they meet the required standards.
What happens if an FHA appraisal fails?
If the property fails to meet minimum property standards, the appraiser will note the deficiencies in their appraisal report. For the loan to proceed, the lender will require the defects to be addressed to get the home to a passing standard.
At this point, the buyer must reach an agreement with the seller over who will finance the repairs to bring the property up to standard. If an agreement cannot be reached or the appraisal price is low, you'll likely have to resume the house hunt.
This can be disheartening. It isn't easy to let go of a home once you've envisioned it as yours.
However, the situation is not as powerless as it seems. While buyers cannot replicate the appraisal process, there are some key items you can look for. Identifying potential red flags during the home search can bring peace of mind that you are doing everything in your (limited) power to avoid a home appraisal failure.
FHA Minimum Property Standards - What to Look For
Whether you’re interested in a listing or touring an open house, here’s a list of things buyers can look for that may be considered red flags to an FHA appraiser:
- Missing handrails
- Cracked windows
- Termite damage
- Lots of dampness inside cabinets or other areas
- Large cracks in the walls
- Stains that indicate evidence of a leak
- Roof damage
- Loose or exposed electrical wiring
- Peeling or chipping paint
- No direct access to the property from the street
- Inadequate ventilation in attics and crawl spaces
Again, buyers cannot replicate the job of the appraiser. The FHA requires approved appraisers for a reason. Thankfully the items above are all pretty easy things to check for, and if you highlight one or multiple potential red flags in a home, it gives you a chance to see if the seller would be willing to address it or might be a great sign to keep looking.
There are some specific FHA minimum property standard rules that buyers should know about too. Below, we’ll discuss some rules and include questions you can pose to yourself or the seller to help determine whether a home is up to FHA standards. You can also look for answers on the listing.
Let’s check them out.
FHA Rules on Peeling or Chipping Paint
Is the home built before 1978?
The FHA has specific requirements regarding peeling paint for properties built before 1978. This requirement is related to the potential presence of lead-based paint, which can be hazardous, especially for young children.
For properties built before 1978, the FHA requires that any peeling, chipping or deteriorated paint be addressed if the appraiser determines it poses a risk of lead-based paint hazards.
The appraiser will identify such areas during the appraisal process.
It should also be noted that the HUD-EPA Lead Disclosure Rule states, “If the property was built before 1978, the seller must disclose any information known about lead-based paint and lead-based paint hazards before selling the house.”
FHA Rules on Minimum Square Footage
Going for a manufactured home?
If so, keep in mind that manufactured homes must contain a minimum square footage of 400 feet to comply with FHA standards.
The FHA does not have a minimum square footage requirement for other types of properties.
FHA Rules on Roof Inspections
Does the home have water stains on the walls or ceilings? Do shingles look missing or warped?
These are big signs that the roof of a home may not be up to FHA standards. The FHA requires that the roof is fully functional, which means no leaks or extreme signs of damage. The FHA also states that the roof should not be in such a state of deterioration that it couldn’t last at least two years.
FHA Rules on Crawl Space
Is the home’s crawl space inaccessible or lacking ventilation?
Generally, the FHA requires that the crawl spaces are free of debris, moisture, signs of pest infestation and signs of structural issues. Crawl spaces must also have proper access and ventilation.