If you were in the market to buy a Southern Maryland home last year, you know 2016 was a hot and heavy sellers’ market across the country. There were more buyers looking for homes than there were homes on the market to meet that demand. And, while the conventional loan was still the most popular among these buyers, the FHA-backed loan accounted for 17.5 percent of all purchase and refinance loans a year ago.
Here’s another testimony to the program’s popularity: Q1 home loan originations last year decreased 8 percent over 2015’s level, but FHA’s loan share increased 7 percent — the fifth consecutive quarter with an increase.
Because so many buyers are using the FHA-backed loan, and many aspects of this program differ from a conventional loan, we’d like to clear up any confusion about the FHA appraisal.
What is an appraisal?
An appraisal is simply an evaluation of a Southern Maryland home’s current market value. Sure, real estate agents determine this value for their listing clients, and many use the same methods as a professional appraiser, but the home appraisal is ordered by the lender. The lender uses an appraiser of its choosing, and this person has final day as a general rule on how much the home is worth.
Naturally, lenders want to make sure that the home they’re lending money on is worth at least what the buyer is paying for it. To determine the home’s worth, the appraiser will visit the home, looking at its structure, roofing, foundation, lot size, location within the neighborhood, and more.
The appraiser will consider the home’s interior as well. He or she will verify the square footage, which actually determined by exterior measurements of the home, and they will make note of any improvements. Once they’re back at the office, the appraiser will research recent real estate activity in the neighborhood and compare the home to those what have sold. All of this information helps them come up with the value of the home.
How is an FHA appraisal different?
Just like a lender who wants to make sure the home is worth the money it is lending, FHA wants to make sure the house is worth the amount it is insuring. The FHA appraisal goes a step further, though, to ensure that the house meets HUD’s minimum health and safety standards.
All homes purchased using an FHA-backed loan must be appraised by a HUD-approved home appraiser. Certain property requirements must be met for the FHA to OK the purchase.
Most of these requirements have to do with the “safety and well-being of the occupants,” according to FHA. These requirements include:
- All stairways must have handrails
- All bedrooms must have at least one closet
- There must be “access/egress” from each bedroom to the outside of the home
- The FHA inspector must find no structural problems, such as damage to the foundation or roof
- The appraiser will check the lot’s grading to ensure that it slopes away from the home to prevent water intrusion into the foundation or basement
- If the home was built before 1978 and the appraiser suspects it contains lead-based paint, he or she will look for chipped and peeling paint.
- The heating system must be in good working condition
If any of these requirements are not met, the appraiser marks them as “subject to repair,” which means that the seller will have to repair these problems before FHA will insure the loan.
If the FHA appraiser determines that the home isn’t worth what the buyer has agreed to pay for it, price negotiations reopen. If the seller does not agree to fix the problems, on the other hand, the sale will not go through. Thankfully, unless the required repairs are prohibitively expensive (adding doors or windows, for example), most sellers understand that they need to make the changes for the deal to go through.
White Plains MD Homes for Sale and Real Estate Services in Southern Maryland. You now have a search engine to help you with your Southern Maryland home search! And I’m ready to provide you with a custom home valuation if you’re considering selling your home. Let’s connect to discuss how I can help you. Contact Kimberly Bean at 301-440-1309
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