Most Common “Red Flags” for FHA Appraisals

hammer-roof

FHA financing allows home buyers to purchase a home with 3.5% down, which is a great deal for the buyer.  However, there are many red flags that appraisers will look for while conducting their appraisal inspections for an FHA loan.  VA loans have a tendency to have even stricter guidelines than FHA loans, and conventional loans tend to be less restrictive.

Before a home even hits the market, sellers should walk through their homes and inspect for these conditions that may become problematic down the line.  Simple repairs that can be done on the front side can help the transaction move along with fewer delays.

Buyers should take note of these items as they walk through homes with their agent, during open houses, and especially during home inspections.  Just like the seller, the buyer should know the key issues before they become delays (or deal breakers).

This list is by no means complete or exhaustive.  These are just common issues that require attention.  Home inspections and appraisals are all completed on a property by property basis.

  • There must be no structural deficiencies noted in the foundation, floor support system, framing, or roof.  If there are, a report from a qualified engineer regarding the cause or proposed correction must be submitted to the appraiser.
  • The attic, basement, and crawl space must be accessible and have adequate ventilation.
  • The crawl space/basement must be dry.  If dampness is noted, a qualified inspector must submit evidence that the problem has been corrected.  The crawl space must be at minimum 18″ measured from the bottom of the floor joist.
  • The grading of the 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, be adequate for the dwelling, and meet town regulations.
  • All utilities must be on and operable at the time of inspection.
  • There must be a heat source in all rooms or adequate heat from a source located in another room.
  • There must be electrical outlet(s) in each room.
  • Heat sources must be permanently affixed and fired by gas, propane, oil, or electric.  Wood can only be used as a back up.
  • Space heaters are acceptable if they are common to area, thermostat controlled, located centrally for proper heat disbursement, permanently affixed, vented, and are adequate to heat the dwelling.
  • Generally, hot water tanks cannot be located within the living space (kitchens, bathroom, bedroom, etc.) Check with your local building department for code.
  • If hot water tanks are in-closet type, these areas must have a permanent vent.
  • Sump pumps must discharge as per appropriate town code.
  • Private water systems (wells) must be tested by state of local HUD office / HOC to determine acceptability. (Only in the case of a transfer of ownership.)
  • Lead base paint hazard:  Correct all defective paint surfaces for homes built before 1978.  This include entire interior and exterior of dwelling, as well as attached and detached garages and any other exterior improvements (barns, fences, etc).  All repainted surfaces must match existing areas.
  • Exterior wood surfaces which are rotted must be replaced.
  • All balconies without railings require access door to have a key deadbolt at least 60″ from the floor.
  • If there is evidence or indication that suspected asbestos containing materials are present in the subject property, the appraiser must note on the report if it is not contained or if it is deteriorating.
  • All inset infestations must be addressed by qualified contractors.
  • All condominiums and planned unit developments must be on FHA’s approval list or accepted through reciprocity.
  • All flooring must be clean and adequately maintained.
  • All walls must be clean and adequately maintained.
  • The chimney must not have cracked or chipped mortar or loose bricks or cap.
  • Smoke and Carbon monoxide detectors are required by New York State Law.
  • Any broken or missing fixtures must be repaired or replaced.
  • All gutters and downspouts must be functional and typical for the area.
  • A roof inspection by a licensed contractor is required if roof is leaking, worn, or appears to have a remaining life of less than 2 years.  If life of the roof is less than 2 years, it must be replaced.
  • Handrails must be in place in all stairwells or steps on the interior and exterior of the dwelling, where required for safety purposes.
  • The rejection of a location is warranted only in instances where the property being appraised is subject to environmental hazards, noxious odors, offensive sights or excessive noise to the point of endangering the physical improvements or seriously affecting the livability of the property, its marketability, or the health and safety of its occupants.
  • No dwelling may be located within 10 feet of the outer boundary of a high voltage transmission line easement, nor may the site be any closer than the fall distance of a structural tower supporting the lines.
  • All other repairs that are “essential” to the health and safety of the occupants.

Information provided by Northeastern Appraisal Associates, Amherst, NY.

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