FHA vs. Conventional Appraisals: What is the Difference?

# FHA vs. Conventional Appraisals: What is the Difference?

If you are buying a home with financing, you will need an appraisal. But not all appraisals are created equal. FHA appraisals have different requirements than conventional appraisals, and understanding these differences can help you avoid surprises during the home buying process.

## The Basics

Both FHA and conventional appraisals determine a property fair market value using similar methods—analyzing comparable sales, assessing condition, and evaluating location. However, FHA appraisals include additional property condition requirements because FHA loans are government-insured.

## Key Differences

### 1. Property Condition Requirements

**Conventional Appraisals**:
- Focus primarily on value
- Note obvious defects but do not require repairs for most issues
- Lender may require repairs for major safety or structural concerns

**FHA Appraisals**:
- Must meet HUD Minimum Property Requirements (MPR)
- Require repairs for safety, security, and soundness issues
- Property must be safe, sound, and secure for occupancy

### 2. Common FHA Repair Requirements

FHA appraisers must call out issues that affect:

**Safety**:
- Missing or damaged handrails on stairs
- Exposed electrical wiring
- Broken or cracked windows
- Non-functioning smoke detectors
- Tripping hazards

**Structural Soundness**:
- Foundation cracks or settling
- Roof damage or leaks
- Water intrusion or moisture problems
- Damaged or deteriorated siding

**Security**:
- Broken or missing locks
- Damaged doors or windows
- Missing access panels

### 3. Specific FHA Requirements

**Peeling Paint** (Pre-1978 Homes):
- FHA requires all peeling paint be addressed in homes built before 1978 due to lead paint concerns
- This is often the most common FHA repair requirement
- Conventional appraisals do not typically require paint repairs

**Water and Sewage**:
- Property must have safe drinking water
- Septic systems must be functioning properly
- Wells may require water testing

**Access and Utilities**:
- All utilities must be on and functioning
- Property must have safe access via public or private road
- Heating system must be operational

**Roof Condition**:
- Must have at least 2-3 years of remaining useful life
- No missing shingles or obvious damage
- Conventional appraisals note roof condition but may not require immediate repairs

## What This Means for Buyers

### If You are Using an FHA Loan:

**Pros**:
- Lower down payment requirements (3.5%)
- More flexible credit requirements
- Ensures you are buying a property in good condition

**Cons**:
- More potential for required repairs
- Repairs must be completed before closing
- May lose out on competitive offers if sellers prefer conventional buyers

### If You are Using a Conventional Loan:

**Pros**:
- Fewer property condition requirements
- More flexibility in property condition
- Sellers may prefer conventional offers

**Cons**:
- Higher down payment typically required
- Stricter credit requirements
- May buy a property needing immediate repairs

## Common Misconceptions

**Myth**: FHA appraisals are more conservative on value
**Reality**: Value is determined the same way. The difference is in property condition requirements, not valuation methodology.

**Myth**: FHA appraisals take longer
**Reality**: The appraisal process timeline is similar. Delays usually occur if repairs are required.

**Myth**: You cannot buy a fixer-upper with FHA
**Reality**: You can, but the property must be habitable and meet minimum standards. For major renovations, consider an FHA 203(k) renovation loan.

## The Bottom Line

Understanding the differences between FHA and conventional appraisals helps set realistic expectations. FHA additional requirements protect buyers from purchasing properties with significant safety or structural issues, but they can also complicate transactions on older or neglected properties.

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*Need an FHA or conventional appraisal? Black Horn Valuations is approved for all loan types. Call (423) 904-6400 for fast, professional service.*