Features

• FHA's method of evaluating the condition of a home involves a physical inspection. FHA-approved appraisers visit the property and inspect and denote various aspects of the home's characteristics. During FHA's appraisal inspection, the inspector denotes any observable deficiencies in the home's structure or site. They may also request further inspection of certain components by a professional -- such as a septic system -- as appraisers' have a limited scope of knowledge.
  
  

Function

• The appraisal inspection's function is two-fold. It supplies the lender with an opinion of value and determines whether the home adheres to FHA guidelines for insurance. The appraiser acts as the lender's eyes; thus they must be well-versed in HUD and FHA policy, have HUD's approval to conduct inspections for FHA-insured loans and have a state appraisal license and certification from the state they practice in. Appraisers must adhere to the valuation protocol set forth in HUD Handbook 4150.1 entitled "Valuation Analysis for Home Mortgage Insurance."
  
  

History

• FHA guidelines for homes change over time and depend heavily on market norms and trends. The appraisal has always been a critical part of an FHA mortgage, and has always had stringent requirements for properties to meet, according to the Coester Appraisal Group. Prior to 2005, certain minor defects in properties required repair before the FHA-insured loan could close. FHA changed its repair requirement guidelines, allowing appraisers to conduct "As-Is" appraisals. "As-Is reports acknowledge deficiencies in the property and condition only some items -- those that affect health and safety -- for repair. For instance, a termite clearance is no longer mandatory if the appraiser observes no signs of wood destroying pest infestation.
  
  

Identification

• HUD's minimum property standards are updated through Mortgagee Letters. Changes to FHA policy may not reflect immediately in HUD Handbooks; therefore, lenders and appraisers must stay afloat of the information dispersed various times per year by HUD. FHA also insures loans on manufactured homes. Guidelines for this property type are addressed in Chapter 10 of Handbook 4150.1.
  
  

Effects

• FHA guidelines prohibit homes that contain potential health and safety hazards that may damage the structure, the occupants or the home's value and desirability. Some deficiencies require immediate repair in order to be insured, such as foundation damage caused by moving soil or settlement; defective interior or exterior paint; leaking or worn roofs; and inadequate evacuation from rooms to the home's exterior.
  
  Other deficiencies -- those that aren't easily repaired -- may disqualify a property all together, such as encroachments. A home with an encroachment either intrudes on another's property, or another's property surpasses legal boundaries onto the subject property.