An FHA loan requires an appraisal on every property, but it does not require a home inspection. The two are often confused because both involve someone walking through the house before closing, but they answer different questions for different people. The appraisal, ordered by the lender, tells the lender what the home is worth and whether it meets HUD’s minimum safety standards. A home inspection, which you arrange and pay for on your own, tells you what shape the house is actually in. FHA strongly encourages buyers to get one, and the lender must hand you a federal notice saying so, but the loan can close without it.
The Appraisal FHA Requires
The Department of Housing and Urban Development requires every lender to order a formal appraisal before FHA will insure the mortgage.1Department of Housing and Urban Development. FHA Single Family Housing Policy Handbook 4000.1 A certified appraiser visits the property on behalf of the lender, not the buyer, and compares it to similar recent sales to determine fair market value. That number sets the ceiling on how much FHA will insure, which directly affects how much you can borrow.
The appraiser also performs a visual review of the home’s condition against HUD’s Minimum Property Requirements. The review is limited. The appraiser looks for obvious problems that affect safety, soundness, or the home’s ability to serve as adequate collateral, not the deep diagnostic testing a home inspector would do.2Department of Housing and Urban Development. HUD Handbook 4150.2 – Property Analysis
The visual check covers a defined list:
- Structural integrity of the foundation, walls, and framing
- A roof with at least two years of remaining useful life3HUD Archives. HOC Reference Guide – Roofs and Attics
- Safe water supply, functioning sewage disposal, and safe electrical wiring4eCFR. 24 CFR Part 200 Subpart S – Minimum Property Standards
- A heating system able to maintain at least 50 degrees Fahrenheit in living areas and around pipes vulnerable to freezing1Department of Housing and Urban Development. FHA Single Family Housing Policy Handbook 4000.1
- Plumbing, electrical, and HVAC systems that operate safely and have reasonable remaining useful life2Department of Housing and Urban Development. HUD Handbook 4150.2 – Property Analysis
The property must also be free of foreseeable hazards that could affect the health of the people living there or the structural integrity of the building.4eCFR. 24 CFR Part 200 Subpart S – Minimum Property Standards Evidence of soil contamination, underground storage tanks, or similar concerns will trigger a conditional appraisal that requires further investigation before the loan proceeds.
Why FHA Does Not Require a Home Inspection
The appraisal is a limited visual review focused on value and basic habitability. A home inspection is a thorough examination of the home’s physical condition, including systems and components the appraiser is not trained or expected to evaluate. HUD explicitly states that an appraisal is not a substitute for an inspection.5Federal Housing Administration. Form HUD-92564-CN – For Your Protection: Get a Home Inspection
Home inspectors typically test appliances, run water in every fixture, enter crawl spaces, check attic insulation, evaluate the age and condition of the furnace and water heater, and look for moisture intrusion, mold, and other problems that a standard walkthrough will miss. None of that is part of the FHA appraisal. A property can pass the appraisal, meaning it meets minimum safety and value requirements, while still carrying tens of thousands of dollars in hidden problems. Faulty wiring behind walls, aging plumbing about to fail, or a furnace at the end of its life are all issues an inspector might catch that an appraiser would not.
A private home inspection for a standard single-family home generally runs between $300 and $600. Older homes and add-on services like radon testing, mold testing, or sewer scope inspections can push the total higher. It is optional under FHA rules, but the cost is small compared with discovering expensive problems after closing, when the seller is no longer responsible.
The Notice Your Lender Must Give You
Every FHA lender is required to give you Form HUD-92564-CN at your first contact, whether that is a pre-qualification call, a pre-approval meeting, or your initial loan application.1Department of Housing and Urban Development. FHA Single Family Housing Policy Handbook 4000.1 The form is titled “For Your Protection: Get a Home Inspection” and states in bold type that appraisals are not home inspections.
The notice explains that an appraisal estimates value for the lender while an inspection evaluates condition for you. It describes what a qualified inspector looks for: the remaining useful life of major systems, items that need repair or replacement, and an overall assessment of the home’s condition.5Federal Housing Administration. Form HUD-92564-CN – For Your Protection: Get a Home Inspection You must sign the form to acknowledge you understand your right to hire an inspector, and the signed copy becomes a permanent part of your loan file.
When the Appraisal Triggers Additional Inspections
Even though FHA only mandates one appraisal, several situations require additional specialized inspections on top of it.
Lead-Based Paint on Pre-1978 Homes
Federal regulations under 24 CFR Part 35 require special handling of lead-based paint in any home built before 1978. The appraiser must look for peeling, chipping, or otherwise deteriorated paint on both the interior and exterior. Any defective paint surfaces have to be stabilized before the loan can close. Sellers of pre-1978 homes also have to disclose known lead-based paint hazards and give buyers a 10-day window to arrange their own lead inspection or risk assessment.6eCFR. 24 CFR Part 35 – Lead-Based Paint Poisoning Prevention in Certain Residential Structures The appraiser’s visual check is not a lead test; that requires specialized equipment.
Private Wells and Septic Systems
FHA generally requires that a domestic well sit at least 100 feet from the septic drain field and at least 10 feet from any property line.7Department of Housing and Urban Development. Mortgagee Letter 2002-25 – Minimum Distance Requirements Between Private Wells and Sources of Pollution Where state or local rules allow shorter distances, FHA may still accept the property, but the well can never be closer than 75 feet from the drain field. The lender will typically require a water quality test and a septic inspection, and if the septic system shows signs of failure due to age, a specialized inspection is required.2Department of Housing and Urban Development. HUD Handbook 4150.2 – Property Analysis
Wood-Destroying Insects
A termite inspection is not required on every FHA property. It is required only when the appraiser observes evidence of active infestation, decay, or suspicious damage; when state or local law mandates it; when it is customary in the area; or when the lender requires one on its own. When required, all structures on the property must be inspected and found free of active infestation, and the report is valid for 90 days.8HUD Archives. HOC Reference Guide – Pest Control For new construction in areas with high termite risk, the builder must certify that an accepted treatment method was used.
Manufactured Homes
Manufactured homes must have a permanent foundation, and a licensed professional engineer or registered architect must certify that the foundation meets FHA guidelines. The certification must include the professional’s signature, seal where the state issues them, and license number, and it must be specific to the property’s site.9HUD Archives. Manufactured Homes – Foundation Compliance
What Happens if the Appraisal Finds Problems
When the appraiser flags issues that violate FHA’s minimum requirements, the appraisal is issued “subject to” the completion of specific repairs. The loan cannot close until those repairs are finished and verified. Common triggers include deteriorated paint on pre-1978 homes, a roof with less than two years of remaining life, nonfunctional mechanical systems, or missing handrails on stairs.
After repairs are completed, the appraiser or another qualified inspector returns and files a Compliance Inspection Report documenting that every flagged item has been fixed.10Department of Housing and Urban Development. Compliance Inspection Report – Form HUD-92051 The report must indicate “Final Acceptance” before the lender’s closing paperwork can proceed.
Sometimes repairs cannot be completed before closing, such as exterior work during winter weather. The lender may allow a repair escrow, where funds are held back from the loan proceeds to cover the cost of repairs after closing. Repair escrows on standard FHA loans are generally capped at $10,000, and all work must be completed within 90 days.
For more extensive work, an FHA 203(k) rehabilitation loan may be a better option. It lets you finance both the purchase of the home and the cost of renovations in a single mortgage, with renovation funds placed in escrow and released as work is completed.11Department of Housing and Urban Development. 203(k) Rehabilitation Mortgage Insurance Program Eligible properties include single-family homes, two-to-four-unit properties, townhomes, eligible condominiums, and manufactured homes titled as real estate. The home must be at least one year old.
Appraisal Cost, Validity, and Transfers
An FHA appraisal typically costs between $400 and $900 for a single-family home, depending on location and complexity. The borrower pays this fee, and it is usually collected before the appraisal is ordered. It is not refundable if the loan falls through.
An FHA appraisal is valid for 180 days from the effective date of the report.12Department of Housing and Urban Development. Mortgagee Letter 2022-11 If closing will occur after that window, the lender can order an appraisal update rather than an entirely new appraisal, extending validity to one year from the original effective date. Appraisals older than one year are never acceptable.
If you switch lenders during the process, the existing appraisal can be transferred. Only the current lender on record with HUD can initiate the transfer, and the new lender must be an FHA-approved originator authorized for your loan type and property location.13FHA Connection Single Family Origination Help. Case/Appraisal Transfer – Business Background A written letter of assignment is placed in the file to document the transfer, which can save you the cost and delay of ordering a second appraisal.