FHA appraisal requirements go beyond estimating a home’s market value. The appraiser also has to confirm the property meets HUD’s standards for safety, security, and soundness, and if either the value or the condition falls short, the loan cannot close until the problem is resolved. Knowing what the appraiser checks, and what your options are when something fails, is the difference between a smooth closing and weeks of scrambling.
The Three Standards Behind Every Finding
Every FHA-eligible property has to satisfy three principles from HUD Handbook 4000.1: safety, security, and soundness.1U.S. Department of Housing and Urban Development. FHA Single Family Housing Policy Handbook 4000.1 Safety means nothing about the home creates an immediate risk of injury or illness. Security means the property protects the lender’s collateral against unauthorized entry and environmental damage. Soundness means the structure is physically durable enough to last through the mortgage term.
Those three ideas drive every line item on the report. A cracked foundation is a soundness issue. Exposed wiring is a safety issue. A door that won’t lock is a security issue. The property also has to be free of hazards that could affect occupant health, structural integrity, or normal use, including toxic materials, flood risk, excessive noise, and soil instability.2U.S. Department of Housing and Urban Development. HUD Handbook 4150.2 – Property Analysis
Exterior and Structural Checks
The foundation has to resist normal loads and keep moisture out of the crawl space or basement. Hairline cracks in concrete are common and rarely disqualify a property. Large cracks, shifting walls, or bowing that suggests active movement will trigger a required structural inspection.1U.S. Department of Housing and Urban Development. FHA Single Family Housing Policy Handbook 4000.1
Site grading needs to slope away from the structure so water drains away from the foundation. Standing water against the foundation is one of the more common reasons an appraiser calls for corrective work.
Roofing has to provide adequate weather protection with at least two years of remaining physical life.3U.S. Department of Housing and Urban Development. HOC Reference Guide – Roofs and Attics Multiple layers of shingles, active leaks, or widespread deterioration will bring in a professional roofer. Siding and trim also have to keep moisture out of the building envelope.
Swimming pools have to comply with local ordinances for barriers, fencing, and covers. If your jurisdiction requires perimeter fencing with a self-latching gate and the property lacks one, expect the appraiser to condition the report on that repair.
Heating, Electrical, and Plumbing
The heating system has to be a permanent installation capable of maintaining at least 50 degrees Fahrenheit in all living areas where heating is needed. That threshold exists mostly to keep pipes from freezing, but it also sets a baseline for habitability. Space heaters don’t count.
Electrical systems get checked for fire hazards. Every habitable room needs working electricity, outlets and fixtures should function and be grounded where code requires, and exposed wiring, frayed connections, or a visibly unsafe panel will trigger a licensed electrician’s inspection.
Plumbing has to deliver pressurized hot and cold water to every fixture without leaks. Waste disposal through public sewer or private septic has to work without backups or surface discharge. Low water pressure or slow drains often signal deeper problems the appraiser will want resolved.1U.S. Department of Housing and Urban Development. FHA Single Family Housing Policy Handbook 4000.1
Interior Safety Items
Lead-Based Paint on Pre-1978 Homes
For any home built before 1978, the appraiser has to identify all defective paint on interior and exterior surfaces. Defective means cracking, peeling, chipping, flaking, or otherwise separating from the surface underneath. Window sills, door frames, baseboards, and exterior trim get the most attention because those high-friction areas deteriorate fastest.
When defective paint is found, the surfaces have to be stabilized before closing: loose material removed, the underlying surface repaired, and a fresh protective coating applied. Federal regulations restrict how the work can be done. Wet scraping, wet sanding, and power sanding with a HEPA-filtered attachment are acceptable. Dry scraping and dry sanding are generally prohibited except in limited circumstances.4eCFR. 24 CFR Part 35 – Lead-Based Paint Poisoning Prevention in Certain Residential Structures This applies to every FHA transaction on a pre-1978 home, not just those with young children.
Egress Windows and Handrails
Every bedroom needs a secondary exit to the outside in case of fire. That usually means a window, and the window has to meet minimum size rules: sill no higher than 44 inches from the floor and a net clear opening of at least 24 inches by 36 inches.2U.S. Department of Housing and Urban Development. HUD Handbook 4150.2 – Property Analysis A bedroom without a window, with a permanently sealed window, or with a window too small to escape through may not qualify as a legal bedroom for FHA purposes. Security bars are acceptable only if they meet local fire codes and open from inside.
Stairways with three or more steps need a sturdy handrail that grips firmly. The appraiser tests existing handrails and flags loose or missing ones. The appraiser also needs physical access to attics and crawl spaces. If those areas are sealed off, the inspection cannot be completed.
Well Water and Septic
Private wells don’t automatically require water testing. Testing becomes mandatory when state or local authorities require it, when there’s reason to suspect contamination, or when the water supply depends on a purification system because of known contaminants. Lenders can also require testing at their discretion. When testing is triggered, the water has to meet local standards, or EPA maximum contaminant levels if no local standards exist.5U.S. Department of Housing and Urban Development. HOC Reference Guide – Individual Water Systems
FHA also sets minimum separations between wells and pollution sources. For new construction, a well has to be at least 50 feet from a septic tank and at least 100 feet from a drain field, seepage pit, or absorption bed. Those distances can be adjusted for soil conditions. For existing properties, local distance rules may be accepted even if less restrictive, provided the lender documents compliance.
Septic systems follow a similar pattern. Testing isn’t automatic, but the appraiser will require it when testing is customary in the area, when a problem is suspected, or when local failures are common. Certification then comes from a qualified professional such as a local health authority or licensed sanitarian. Where public sewer isn’t available, FHA accepts individual systems that meet local health authority standards, including cesspools and mound systems where permitted.6U.S. Department of Housing and Urban Development. HOC Reference Guide – Sewage Systems
Site Hazards
The appraiser looks beyond the home itself because FHA won’t insure a property where external conditions threaten health, structure, or normal use. Toxic materials, radioactive substances, flood risk, erosion, soil instability, and excessive noise all fall under this heading.
High-voltage transmission lines get specific treatment. If the home or any improvements sit within the easement of a high-voltage line, the underwriter has to obtain a letter from the tower’s owner confirming the dwelling is outside the tower’s engineered fall distance. Properties outside the easement are eligible without further action, though the appraiser still notes any effect on marketability from the lines.7U.S. Government Publishing Office. The Impact of Overhead High Voltage Transmission Towers and Lines on Eligibility for FHA Insured Mortgage Programs
Condos and Manufactured Homes Have Extra Rules
If you’re buying a condo, the project itself has to appear on FHA’s list of approved projects before a case number can be assigned, with narrow exceptions for FHA-to-FHA streamline refinances and site condominiums.8U.S. Department of Housing and Urban Development. Condominium Project Approval and Processing Guide No level of individual unit quality gets a loan through an unapproved project.
Manufactured homes have their own eligibility screen. The home has to have been built after June 15, 1976, carry a HUD certification label, provide at least 400 square feet of floor area, remain on a permanent chassis, sit on a permanent foundation built to FHA specifications, and the mortgage has to cover both the unit and the land. The finished grade under the home has to be at or above the 100-year flood elevation.9U.S. Department of Housing and Urban Development. Manufactured Homes – Eligibility and General Requirements Pre-1976 manufactured homes are ineligible entirely.
What the Report Says
The finished appraisal is a Uniform Residential Appraisal Report, Form 1004 for single-family homes.10Fannie Mae. Uniform Residential Appraisal Report It comes back with one of two designations. “As-is” means the property meets all FHA requirements and can proceed to closing. “Subject to” means the appraiser identified specific repairs or inspections that have to be completed first. A leaking roof, missing handrails, defective paint on a pre-1978 home, or a non-working heating system are common triggers.
Validity and Case Transfers
An FHA appraisal is valid for 180 days from the effective date of the report. If closing won’t happen inside that window, the lender can order an appraisal update to extend validity to one year from the original effective date.11U.S. Department of Housing and Urban Development. Dear Lender Letter 2024-02 – Updated Appraisal Validity Periods Delays from repair negotiations, financing hitches, or seller-side issues can push a deal past the deadline. An expired appraisal means ordering a new one at your expense.
One detail catches buyers off guard: the FHA appraisal is tied to the property through the FHA case number, not to you. If a deal falls apart and the next buyer also uses an FHA loan, the appraisal can transfer to the new lender along with the case number. The transfer only works on non-endorsed cases, meaning before the loan has been finalized, and the originating lender has to initiate it.12U.S. Department of Housing and Urban Development. Case Transfer Help A low appraisal doesn’t vanish when one buyer walks away. The next FHA buyer may inherit the same value.
When the Appraisal Comes in Low
A low appraisal is one of the tougher moments in an FHA transaction because the gap between appraised value and purchase price cannot be rolled into the loan. If the appraiser values the home at $280,000 but you’re under contract for $300,000, FHA will only insure a loan based on $280,000. You have three main options.
You can negotiate with the seller to lower the price to the appraised value. Many sellers agree rather than lose the deal, especially if the property has been listed for a while, and the case transfer rule gives them a reason to take the offer in front of them. You can pay the difference in cash at closing, though that undercuts the point of a low-down-payment loan. Or you can walk away. Most purchase contracts with an FHA financing contingency let the buyer cancel without penalty when the appraisal comes in short.
A fourth path exists but has narrowed. Through March 2025, FHA allowed borrowers to directly request a Reconsideration of Value if they believed the appraisal was inaccurate. Mortgagee Letter 2025-08 rescinded that borrower-initiated process.13U.S. Department of Housing and Urban Development. Mortgagee Letter 2025-08 – Rescinding Multiple Appraisal Policy Related Mortgagee Letters Under current policy, only the lender’s underwriter can request a reconsideration, and only when the appraiser failed to consider information that was relevant on the date of inspection. The underwriter has to supply the appraiser with the relevant data, such as better comparable sales the appraiser overlooked. If the missing data wasn’t the borrower’s fault, the borrower can’t be charged extra for the reconsideration.
Practically, that means your best move on a low appraisal is to hand your loan officer any comparable sales or property information you believe the appraiser missed. Your loan officer can then push the underwriter to request a reconsideration. There’s no guarantee the underwriter will pursue it, and the appraiser is under no obligation to change the value.
Handling Required Repairs
When the report comes back “subject to” repairs, the work generally has to be completed before closing. The seller handles the repairs in most transactions, though nothing stops buyer and seller from negotiating who pays. Common items include stabilizing defective paint on pre-1978 homes, fixing leaky roofs, installing handrails, correcting drainage, and repairing broken heating or plumbing.
If the work can’t be finished before closing, the lender may set up a repair escrow account to hold funds for completion after the transaction closes. FHA requires the lender to hold back 10 percent of each draw from the escrow account until work is verified complete.14U.S. Department of Housing and Urban Development. Mortgagee Letter 2025-XX – Repair Escrow Requirements Projects estimated at $15,000 or less follow a simpler process, while larger projects carry additional oversight. Once the work is done, the appraiser or an inspector verifies it before escrow funds are released.
Be realistic about timing. Repair negotiations often add two to four weeks, and finding a contractor to do a small job on someone else’s house before a sale closes can be difficult. Sellers sometimes resist making repairs on a home they’re leaving, and a price reduction or closing cost credit is often the cleaner path. The goal is getting the property to FHA standards by whatever route brings all parties to the closing table.