FHA financing currently allows home buyers to purchase a home with 3.5% down. This is a great opportunity for buyers to get into a home with a small down payment however these FHA loan product comes with more restrictive appraisal guidelines than conventional loans.
We meet many first time buyers who are do-it-yourselfer(s). Some buyers who have family and friends who are carpenters or trades-people. Or some that don't mind living in incomplete or in-need properties until they have the finances and time to complete house projects. Unfortunately, FHA loans often don't allow the freedom for buyers to make repairs later.
Buyers should take note and look for some of these more common FHA loan appraisal red flags when viewing properties. And buyers should be aware that some of these red flags can be deal breakers. Your real estate broker and loan officer can help you navigate this and find a great home.
Common FHA Appraisal red flags:
- No structural deficiencies in the foundation, framing, or roof.
- The basement must be dry and lot must provide positive drainage away from perimeter walls of the dwelling.
- All mechanical systems (plumbing. heating, and electrical) must be operating at the time of inspection and be suitable for the home.
- All utilities must be on and operable.
- Electrical and plumbing must be updated.
- Heat sources must be permanent and fired by gas, propane, oil, or electric. Wood can only be used as a back up.
- Lead base paint - Correct all pealing defective paint surfaces for homes built before 1978. This includes the entire interior and exterior of dwelling, as well as attached and detached garages, barns, fences.
- Exterior wood surfaces must be rot free.
- Smoke and Carbon monoxide detectors must be present.
- Any broken or missing fixtures must be repaired or replaced.
- Handrails must be in place in all stairwells or steps on the interior and exterior of the dwelling, where required for safety purposes.
This list is by no means complete or conclusive. These are just common issues that require attention. Home inspections and appraisals are all completed on a property by property basis and my differ by region.