FHA Appraisal Guidelines
When searching for a new FHA mortgage, it’s wise to look beyond the list price (Source) and beware of falling in love too quickly (Source). There are warning signs not to buy that house that work also as FHA appraisal guidelines from the point of view of the prospective buyer (Source). You’ll likely need to pay for a few repairs before you move in (Source). Additionally, the house may not be what it seems. Here are six warning signs that you should walk away.
1. No Inspection
Some owners choose to sell their home as-is and will not allow a home inspection. Chances are the house that has significant problems and may be a more substantial home renovation project than anticipated. Without a home inspection, you won’t know if this home will be an investment or just a money pit.
2. The Smell Test
While you may not be a professional chef or taster with a remarkable sense of smell, you can use your olfactory senses when you tour a potential house. You want to look for whiffs of sewage, musty air, and even hints of smoke. These scents may indicate inadequate sewage piping, compromised walls or rugs, mold, and possibly pests.
On the other hand, if the property has a strong air freshener smell, you may want to be suspicious of the seller. The artificial perfume may be intended to cover an undesirable odor. For instance, a funny smell may mean the previous owner had too many cats that may have used the carpet instead of a litter box. That smell may mean that you need to completely rip up the carpet, deep clean, and replace it. It’s better to err on the side of caution.
3. The Roof Is Falling Apart
While the interior of the house may be staged well, don’t forget to go outside and check the roof. You’ll want to evaluate how the roof was installed, any poor-quality or missing shingles, areas of dry rot, and if the gutters are functioning.
The national average to install a new roof is about $7,748. A quick assessment during the house tour can help you know whether to walk away or if you should negotiate a lower purchasing price.
4. FHA Appraisal Guidelines: Located in a Flood Zone
Homes next to a beach or lake are obviously at risk of flood. However, homes do not need to be near a large body of water to be in a flood zone.
The Federal Emergency Management Agency, or FEMA, has several different flood zone classifications and a map to see if the property is in a flood zone. For example, you may live in a hurricane-prone community or located on a flood plain where the layout routes water onto your land.
The cost of flood insurance is based on a few different factors, such as when the home was built, the number of floors, and the flood zone classification. If the property is in a flood zone, your mortgage company will likely require flood insurance. Get ready to walk away from this house or be sure to add this cost to your monthly budget.
5. Questionable Plumbing
Plumbing and water pressure are also potential deal-breakers. Plumbing problems may not be immediately evident. In addition to checking for water stains, taking note of sagging floors or ceilings, and the smell of mildew, there are a few other things you can do.
As you tour the house, test the faucets and flush the toilets. You’ll be able to see the water pressure, check for water discoloration or rust, and even identify any leaks.
Since significant repairs such as replumbing a house may cost you thousands of dollars, it may be better to move on and look for another home.
6. Compromised Foundation
Although it may be smart to get on your hands and knees to investigate the crawlspace of a potential house, you can also see signs of a bad foundation during a walkthrough. If you spot gaps around windows and doors, cracks in the drywall, peeling paint, cracks on the home’s exterior wall, or have difficulty shutting doors, the house may have a bad foundation.
Since the entire home rests on the foundation, you may be facing significant repairs, obtain a waiver for the peeling paint, or complete demolition.
FHA Loan Requirements
The Federal Housing Administration (known as FHA), is providing mortgage insurances in the mortgage loans (Source) concluded by FHA lenders (Source), lenders approved by the FHA (Source). Below we describe the FHA loan requirements in detail.
The insurances granted by the FHA correspond always to single familiar (Source) and multi-familiar residencies within the country (Source). FHA is the second largest provider of these residential mortgage insurances on the planet, after the European Union (Source).
List Of FHA Loan Requirements
- Minimum FICO® scoring of 580 = Requires the borrower a down payment of 3.5 %.
- FICO® scoring between 500 and 579 = Requires the borrower a down payment of 10 %
- The accomplishment of other ancillary requirements such as peeling paint waivers, or the identity of interest certification.
- The borrower must be a legal resident of the United States.
- Proof of employment and evidence of regular income.
- The property must be the primary home of the borrower.
- The borrower must have a debt to income ratio < 43 %
- A Mortgage Insurance Premium is required.
A Federal Housing Administration mortgage loan is a loan that is protected from default by an insurance contract issued by the FHA. Thanks to this, prospective buyers do not need to save a lot of money for a larger downpayment and can purchase their home with just 3.5 % down payment. This percentage is quite a low down payment in comparison to standard mortgage loans.
Mortgages backed by the FHA are suitable also for a borrower who was subject to foreclosure or went bankrupt in the past.
Nevertheless, despite the aforementioned bankruptcy or foreclosure event, the applicant of these FHA backed mortgages must enjoy a decent FICO® scoring as one of the FHA loan requirements.
Thus, it is required scoring of 580 to be eligible for the 3.5 % down payment that is really very low and convenient. In the situation that your FICO® is lower than 580, you will instead have to pay a down payment of ten percent. Ensure always that your credit score is in good standing.
FHA loan requirements indicate that apart from previous bankruptcies or foreclosures, the FICO® scoring has to be studied, as well as other circumstances such as having a demonstrated steady source of income and being a legal resident of our country.
Requirements For FHA Loans Explained
Do you know your credit score? Do you know how that number affects you?
Knowing the range of where your credit falls is crucial. It can help you predict whether you will qualify for a credit card or in our case, an FHA loan.
Here is a breakdown of the different credit score ranges:
|FICO® Score||300 to 579||580 to 669||670 to 739||740 to 799||800 to 850|
Excellent score is 800 and higher: If you fall into this range you will be considered royalty by lenders. You will never be denied a loan and the loan APRs offered to you will be the lowest possible. A score in this range means that you have great financial capacity, knowledge, and discipline. It also means that you use a substantial amount of your credit on a monthly basis.
A very good score is 740 to 799: This is the range, as published in 2020, where 27 (twenty-seven) percent of the U.S.population is residing. In this range, you will have no problem getting approved for any type of loan, for example, of course, an FHA loan. In addition, you will enjoy good interest rates.
A good score is 670 to 739: This is the range where the average Americans are situated by the update of the year 2020. In this range, you will have a good shot at credit approval but your interest rates may be higher. You could perfectly apply to an FHA loan if you are located in this range, as the majority of Americans.
A fair credit score is 580 to 669: You will find in this range that if you are applying to credit, the interest rates tend to be on the higher side, as the borrower is riskier. And if you are approved for credit there may be restrictions on your loan. Nevertheless, the majority of FHA loans are for borrowers that are situated in this range. With a credit score of 580 or more, you can apply for an FHA loan and you will be required to perform a down payment of 3,5 % as we explained thoroughly above.
A poor credit score is 579 or below. With a poor rating, you could probably still qualify for a loan or mortgage, but the interest rates will be nauseating. You will pay more money over a long period of time because of the high-interest rates. In an FHA loan, you will be required larger down payment, which will be ten percent. In the lower ranges of the credit score rankings, you have very little chance of getting any loans and if you do, you will need the help of a subprime lender. The interest will be very high as it is regarded as a risky loan. An FHA loan may be denied.
If you are located in a lower range, with a poor credit score, it is recommended that you seek assistance to fix your credit before you apply for any loans.
The FICO® score is a number that represents a potential borrower’s creditworthiness. FICO® is a data analytics company that uses consumer credit files collected from different credit bureaus to compute their scores.
Your FICO® score is reviewed by lenders and is used to determine how likely you are to make timely payments on your mortgage. The higher the score, the better your chances are of getting a lower interest rate on your mortgage.
FHA Case Number Format Clarifications
The system for the delivery of electronic appraisals for the FHA loans, what is called the FHA EAD portal (Source), to which we dedicated an article mirrors in a good part, the same technology that is being utilized in standard mortgage loans (Source). However, this is with some distinctions to do related to the FHA case number format, in regards to master data management (Source) and specifically in relation to other systems of the Federal Housing Administration and other federal agencies (Source).
The appraiser will initiate an appraisal report for a third-party service provider or for the mortgagee. The 3rd party service provider will himself introduce the appraisal report utilizing always the EAD website before the endorsement. Before this, the requestor has to complete the necessary FHA loan requirements with the yearly limits that correspond.
The appraisal report cannot be handled in any way or with any format. The FHA, Federal Housing Administration, requires that the aforementioned document is issued according to a specific standard. This industry-standard uses extensible markup language.
As you can see, the appraisers are required to know quite well how to use the EAD dashboard. Otherwise, their appraisal report could be rejected.
FHA Roster Appraisers will create appraisal reports for mortgagees or their third-party service providers, who will, in turn, submit the appraisal to FHA through the EAD portal prior to endorsement.
The appraisal report format required by FHA is the industry standard Mortgage Industry Standards Maintenance Organization Extensible Markup Language with embedded Portable Document Format (MISMO XML with Embedded PDF). FHA Roster Appraisers will create appraisals in this file format, using their own software, to ensure that FHA receives the appraiser’s original work product. Common Appraisal Data Errors FHA Roster Appraisers need to be familiar with the EAD portal’s general functionality, and how this function affects the appraisal report file formats and other appraisal data sent to FHA mortgagees.
The following are some of the most common appraisal data errors that appraisers should check before completing an appraisal report: 1. Insert the FHA case number at the top of the upper right-hand corner to correspond with the XML label: /VALUATION_RESPONSE/REPORT/@AppraiserAdditionalFileIdentifier. 2. Use the proper format/abbreviation for the state. In the Address for Subject field, match the United States Postal Service format. States are abbreviated with a two-character alpha code, in all capital letters and without periods or other punctuation. For example, Pennsylvania is abbreviated as “PA” not “Pa.” The same rule applies when completing the appraiser’s License State field.
The HUD 92900 A Form
Form HUD 92900 A is a legal document signed in the case of an application for an FHA loan or a VA loan (Source). This is an annex to the loan application (Source), as an addendum (Source). It is a certification to the federal agencies, and also organizations at the state level, that what is informed in the document is correct (Source). Previously, the FHA loan requirements have to fulfilled by the party that requests the FHA mortgage according to the loan limits that are yearly established (Source).
This form HUD 92900 A is a document seeking backing for an FHA loan or also could be a VA loan.
Therefore, the prospective borrower will complete an URL application, what is the Uniform Residential Loan form as an application for the FHA financing. Likewise, you will complete the HUD 92900 A form (HUD stands for the Department of Housing and Urban Development) what is a formal request to the government to back the FHA loan.
The mortgage loan lender, here precisely an FHA lender will enjoy an additional protection in case of default through the FHA insurance (or VA warranty in the case of a loan of a VA loan).
When you, as the borrower of the FHA loan sign this form HUD 92900 A, the HUD addendum also called, is a promise, a certification on your side that you will perform the payment of the FHA loan for the home, and that you will be in debt to the United States federal government if you default the repayment of the aforementioned loan.
Likewise, when the FHA lender signs this form, he is providing a certification to the federal government, that the borrower is meeting the eligibility guidelines for FHA insurability. In the case of default, the federal government will proceed to partial reimbursements of the losses of the FHA lender.
Instructions To Complete The Form
It is important that you, as a borrower, and the FHA lender provide the right information when filling out this form. In this form is where I see that many major banks try to stay away from FHA loans and that many smaller FHA lenders have entered here to occupy these positions in the mortgage loans market.
The reason is that these banks, have received many False Claims Act derived actions brought by the Department of Justice or by any citizen on behalf of the interests of the government.
FHA lenders that are providing this HUD 92900 A certification, must apply due diligence in following the FHA guidelines faithfully and even conducting an audit before the closure of the loan.
These audits can allow highlighting a prospective pitfall or a defect in the process and thereby correcting a deficiency before an event is triggered later on by the FHA or the Department of Justice.