Do You Want To Save Your FHA Buyers Money and Time?
This week I had a situation with an FHA appraisal assignment that I wanted to share with you. The thing
that makes this one different from the others is that if it had been handled differently it would have saved the buyers money on a final inspection and they probably could have closed their loan faster.
Appraisals done for FHA financing are typically more strict than for conventional loans. Issues that arise usually fall into 3 categories which are safety, soundness, and security. Safety refers to the health, habitability, and sanitary conditions of the property. Any item that would threaten the occupant’s health is included here, such as peeling paint, frayed wiring, or missing handrails.
The second ‘S’ is for soundness, which relates to the structure and structural components of the home. Examples of these include items such as foundation problems or roof leaks. The last ‘S’ is for security. We’re not talking about whether the house is locked up and secure but whether the property will be good collateral for the loan. Is it worth at least what the buyer is borrowing?
Things that can affect whether it will be good collateral usually have to do with its marketability. Some of the things that can affect marketability include whether the home is near high voltage power lines, near railroad tracks, or some other negative influence. If it is then this may keep people from wanting to buy it from the bank if it went into foreclosure.
In my 28+ years as an appraiser I’ve seen all kinds of issues with homes but today I’ll share with you the top 4 things agents can do to save their FHA buyers money and time.
4 Key Areas To Focus On
1) Windows– The biggest issue I see with windows is whether they can be easily opened if it is necessary to exit to the outside. This is the perfect example of a safety issue. If there was a fire in the home and the only way to get outside was through a window could it be opened?
Windows in older homes are usually the ones that are hardest to open because most of the time they are painted shut. I did, however, see something this week I had never seen and that was windows that were nailed shut.
They were impossible to open up and I made it a requirement for the nails to be removed so the windows could open and close. For safety’s sake, they should be able to be opened by a small child in case of an emergency.
2) Paint– I’ve written previous posts on the proper way to address peeling paint in FHA loans so I won’t cover that here except to emphasize that if a house has peeling paint it should be removed and repainted. Over the years I have slowly seen conventional loan requirements also require this, so its a good bet that no matter what loan type a borrower chooses the peeling paint will need to be corrected so why not do it before the home goes on the market? Putting it off until the last minute will only result in the borrower paying more and delaying the loan.
3) Appliances– I get questions from agents about appliances frequently. They are concerned that the home may not pass the FHA appraisal guidelines if an appliance is missing.
One of the main things to keep in mind is that an appliance does not have to be present to pass FHA guidelines. If an appliance is missing, however, there cannot be any exposed wiring or uncapped gas pipes.
If an appliance is present it must work properly. A stove that has burners that do not work or a microwave that will not turn on will either have to be removed or replaced.
4) Utilities– As you might expect, all utilities must be turned on for the appraisal observation. Electricity must be on for the appraiser to check the operation of all of the appliances as well as the heating and cooling system.
If the home has gas it must also be turned on to check things such as the heater, water heater, and the stove if it is gas. The water must be on so that the faucets can be turned on and the toilet can be checked as well.
So to recap, agents can save their clients both time and money by making sure that windows open and close, no peeling paint is present, appliances work if they are present, and that all utilities are on. This will ensure that the appraiser does not have to revisit the property, which extends closing time and increases cost for the additional inspection.
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Good stuff Tom. There is a huge advantage when agents are in tune with FHA standards. It really does help serve their clients well. Moreover, sometimes an agent can know clearly if a property will pass FHA or not. Silly repairs can extend escrows too, and in a age of rising interest rates it would be a shame to take longer and have the buyer lose his/her rate.