FHA Property Condition Requirements

FHA Minimum Property Standards and Inspection Requirements

An FHA appraisal does more than determine a home's value. The FHA-approved appraiser also looks at the property's condition to determine whether it meets FHA minimum property standards.

The goal isn't to require a perfect home. FHA is primarily concerned with conditions that may affect the property's safety, soundness, livability, or marketability.

What to know

1. FHA Appraisals Check Value and Property Condition

An FHA-approved appraiser evaluates the home's market value using comparable sales while also looking for property conditions that may not meet FHA minimum standards.

The property's value and condition are generally based on what exists as of the appraisal inspection date.

2. Health, Safety and Structural Problems Can Require Repairs

FHA is primarily concerned with conditions that could affect the occupants' health and safety, the structural integrity of the property, or its continued marketability.

If the appraiser identifies an unacceptable condition, repairs or additional inspections may be required before the FHA loan can close.

3. Major Areas of the Property Are Reviewed

The appraiser observes accessible areas of the home for obvious deficiencies.

These can include the basement or crawl space, attic, foundation, roof, drainage, plumbing, electrical system and heating system.

Crawl spaces should generally be accessible where necessary, properly vented and free from excessive moisture, standing water, debris and vermin.

Attics may be checked for roof leaks, damaged wood, moisture, exposed or damaged wiring, inadequate ventilation and signs of pests.

The roof should be in serviceable condition with adequate remaining useful life.

Drainage problems that allow water to collect around the home or foundation may also need correction.

4. Utilities and Major Systems Should Be Operational

Electrical, plumbing and heating systems should be safe and functional.

Exposed or damaged wiring can create an FHA repair condition. The home should have an adequate supply of hot and cold water, fixtures should drain properly, and obvious plumbing leaks may need to be repaired.

The home also generally needs an adequate permanent heating source appropriate for the area.

Central air conditioning isn't required by FHA, but when it is installed, its condition and operation may be considered during the appraisal.

Appliances that remain with the property may also be checked for proper operation.

5. Peeling and Defective Paint Can Be an FHA Issue

For homes built before 1978, chipped, peeling or otherwise defective paint can raise concerns because of the potential for lead-based paint.

Problem areas may need to be properly corrected before the loan can close.

Defective exterior paint exposing the underlying surface can also require attention on newer homes.

6. Termites, Pests and Dry Rot May Need Attention

FHA does not automatically require a pest inspection on every property.

However, if the appraiser observes evidence of termites, wood-destroying insects, dry rot or similar damage, a professional pest inspection and repairs may be required.

Decks, porches, outbuildings and other improvements contributing to the property's value should also be free from significant pest or dry-rot damage.

7. Wells, Septic Systems and Property Access Have Additional Rules

Homes with private wells and septic systems may be subject to additional FHA requirements, including minimum separation distances designed to protect the water supply from contamination.

Well-water testing may be required under certain circumstances, such as new construction, suspected contamination, reported deficiencies or inadequate separation between the well and septic system.

The property must also have adequate access. Private roads, easements and road-maintenance arrangements may need to be addressed in the appraisal or loan file.

8. Environmental and Site Hazards Can Affect FHA Eligibility

Certain hazards near or on the property can require additional evaluation.

Examples can include unsafe oil or gas wells, large fuel-storage tanks, sinkholes or land subsidence, hazardous contamination, high-voltage transmission lines and other conditions that could threaten the occupants or negatively affect the property's marketability.

Depending on the issue, additional inspections, certifications or repairs may be necessary.

9. An FHA Appraisal Is Not a Home Inspection

This distinction is important.

An FHA appraisal is performed for the lender to determine value and evaluate whether the property appears to meet FHA requirements. It is not intended to identify every defect or future maintenance problem.

Buyers should consider obtaining their own professional home inspection even when the property passes the FHA appraisal.

10. FHA Repair Requirements Can Vary

Not every cosmetic defect needs to be repaired for FHA financing. The primary concerns are generally health, safety, structural soundness and conditions that could negatively affect the property.

The appraiser must use professional judgment, and individual lenders may also have additional requirements or overlays.

If you're buying or selling a home using FHA financing, identifying potential property-condition problems early can help prevent appraisal surprises and closing delays.

Bottom line

A home doesn't have to be perfect to qualify for FHA financing. It does, however, need to meet FHA's basic standards for safety, soundness and marketability.

If you're unsure whether a property's condition could create an FHA financing problem, it's usually better to address the question before the appraisal is ordered rather than discover it just before closing.