Is there a difference between the appraisal process for a conventional and an FHA mortgage? I often get asked this question. In general, I find that there is a common misconception held by sellers, buyers, and real estate agents regarding the different appraisal types.
When an appraisal is completed, regardless of the loan type, it is either marked “As-Is” or “Subject To'” In the mortgage lending world, we want the appraisal marked “As Is.” If the appraisal report is marked “Subject To” we need to get the report moved to “As-Is” before the loan closing.
What is “As-Is”?
The primary purpooffor an appraisal report is to determithehat the market value of the collateral. The lender needs ensureure that the value is there before they complete the loan. The appraiser looks at total square footage, several bedroom,oms, and bathrooms among many other items. The details of your home, are then compared to other similar homes in the neighborhood to determine recent sale prices. Adjustments will also be made based on amenities in your home compared to the other recent sales. The appraiser will then use that data to best determine yohome’sme’s current market value.
The appraisal is not for a home inspector. They are not trained to look through every nook and cranny of the home to see if repairs are needed or if there are any other issues. Although the appraiser is not a home inspector, they are required to list any repairs that are visible on the report. If there are no repairs listed on an appraisal report, the report is listed as “As Is”. The “As-Is” demarcation means the lender can fund the mortgage with no repairs needed.
What is Subject To?
If the appraisal report is not listed as “As-Is” there are repairs that are required before funding. On a purchase transaction, the seller is responsible to complete the repairs. In a refinance transaction, the homeowner is responsible for the repairs before closing.
An appraisal report that is marked “As-Is’ will have pictures of the areas that require repair. There is also a written description of the needed repairs listed in the report. An example, the isna seller started to renovate a bathroom. They then listed the property for sale before completing the job. Everything is complete in the bathroom except for the tile flooring. If the flooring is not complete when the appraiser goes out to the property it will get listed on the report. The seller would then need to complete the floor.
On any appraisal, after the repair is complete, the appraiser would need to come back out to the property to confirm the repairs are complete.
Is FHA More Stringent Than Conventional When It Comes to Appraisal Reports?
This is the question that I often get asked. There is a misconception that an FHA appraisal is much more difficult to get through than a conventional appraisal. The truth is that both a conventional appraisal and an FHA appraisal will require any noted repairs to be completed. Nearly all residential real estate appraisers are certified for conventional and FHA reports. This means that the same appraiser will appraiser the house regardless of loan type. The appraiser is going to be looking for the same types of repairs on either appraisal type. SImilar repairs will be noted on either appraisal type. In both cases the appraisal report would be marked as “Subject To” with repairs required.
There is one primary difference in the two types of appraisal reports. An FHA appraisal report will list any chipped paint on the exterior as needs to be repaired. As many homes exteriors may be some type of siding, brick or stucco these properties would rarely have a chipped paint repair. Most often the chipped paint repair is on a garage, shed or screened in porch. The chipped paint repair is usually found around door frames, railings, or wood porch ceilings.
Why Is Chipped Paint a Problem?
Chipped lead based paint can be a problem. The appraiser and lender are unable to determine if the used paint contains led or not. Therefore any chipped paint is listed as needs to be repaired. Fortunately, this is one of the easiest repairs to complete. Any chipped paint needs to be scrapped, sanded and repainted. Often these repairs are around door frames or on steps, and can be completed easily by the homeowner. In some cases the damaged areas may be more extensive or could be in a difficult area to deal with, such as a porch rood. Even in that case if the homeowner is unable to complete, it can often be handled by a professional in a day.