An FHA appraisal is a lender-ordered evaluation of a home that does two jobs at once: it estimates the property’s market value and confirms the home meets HUD’s minimum standards for safety, security, and soundness. Understanding how FHA appraisals work matters because the rules are stricter than a conventional appraisal, the appraiser can require repairs before your loan closes, and a low value or a failed property condition can stall the deal or end it. The rules also shifted in 2025, with HUD rolling back a borrower-initiated challenge process that had existed for only about a year.
What the Appraiser Looks For on the Property
HUD Handbook 4000.1 sets Minimum Property Standards organized around three concerns: safety, security, and soundness. The appraiser walks the home looking for conditions that could harm occupants, weaken the structure, or put the lender’s collateral at risk. A conventional appraisal might flag a defect and keep moving. An FHA appraisal can require it be fixed before the loan funds.
Specific items get checked. The heating system has to work and be able to hold an adequate temperature throughout the living space. The roof has to keep water out and have enough useful life left that it won’t need immediate replacement. Electrical systems can’t include exposed wiring, active knob-and-tube runs, or other fire hazards. Plumbing must deliver hot and cold water to all fixtures, and the home needs functioning toilets, sinks, and connections to electricity, potable water, and sewage. The appraiser also needs access to crawl spaces and attics to check for structural damage, ventilation issues, or active pests.
Lead-Based Paint on Pre-1978 Homes
Homes built before 1978 get closer scrutiny because lead-based paint was legal until the federal ban that year. The appraiser inspects every interior and exterior surface for defective paint, meaning paint that’s cracking, scaling, chipping, peeling, or loose. Where defective paint is found on a pre-1978 home, the fix is specific: the damaged paint must be scraped, primed, and double-coated before closing.1Environmental Protection Agency. Lead-Based Paint Disclosure Rule Fact Sheet This covers the house itself and detached structures like garages, fences, and sheds. Intact paint in good condition triggers no action, even on older homes.
Private Wells and Septic Systems
Properties on a private well or septic system face added requirements. The well must sit at least 50 feet from any septic tank. Water quality testing is often required to confirm the well produces safe drinking water, and those tests typically cost $50 to $400 depending on local rules and how many contaminants get screened. If the property has a septic system, the appraiser verifies it’s functional and properly distanced from the water supply. Those costs usually land on the buyer and are separate from the appraisal fee.
How the Home’s Value Is Determined
After the physical walkthrough, the appraiser builds a market valuation using the Sales Comparison Approach. That means pulling recent sales of similar nearby homes and adjusting each sale price to reflect differences with the property under contract. If a comparable home sold for $280,000 but had one fewer bathroom, the appraiser adds value. Larger lot on the comparable? Subtract. The point is to bracket what a reasonable buyer would pay for this specific home in the current market.
HUD requires at least three settled sales on the comparison grid.2U.S. Department of Housing and Urban Development. Mortgagee Letter 2025-18 – Rescission of Outdated and Costly FHA Appraisal Protocols In markets where values are moving, the appraiser must also include at least two sales that closed within 90 days of the appraisal date, plus a minimum of two active listings or pending sales. Comparables should be geographically close to the subject; where substantial distance exists, the appraiser has to include additional maps and explain why closer sales weren’t used.
The report documents the total room count, measures the living area, photographs each major room, and notes upgrades or defects that affect value. It includes interior and exterior photos, a street scene, and images of any deficiencies needing repair.
Who the Appraiser Is and Who Picks Them
Only appraisers with an active state certification who appear on the FHA Appraiser Roster can perform these evaluations.3U.S. Department of Housing and Urban Development. FHA Roster Appraisers The buyer pays for the appraisal but has no say in who performs it. That’s deliberate. HUD wants a wall between the person valuing the home and the parties with a financial stake in the sale.
Many lenders route the assignment through third-party appraisal management companies, though HUD doesn’t require it. What HUD requires is appraiser independence: neither the buyer, seller, nor real estate agent can influence which appraiser gets the job.4U.S. Department of Housing and Urban Development. Mortgagee Letter 09-28 – FHA Appraiser Independence The appraiser’s report goes to the lender, not to the parties negotiating the deal.
An Appraisal Is Not a Home Inspection
This trips up first-time FHA buyers. The appraisal looks at property condition, but only at what’s readily observable during a walkthrough. The appraiser isn’t pulling up carpet, running the dishwasher, or scoping the sewer line. FHA does not require a separate home inspection. If the appraiser spots something outside their expertise, such as possible termite damage, foundation cracks, or a failing roof, they can require a specialist inspection before the loan moves forward, and that report is on the buyer’s dime.
The appraisal protects the lender’s collateral. A home inspection protects you. Skipping the inspection because you already paid for the appraisal is one of the more expensive mistakes a buyer can make.
Cost and How Long the Appraisal Is Valid
Most FHA appraisals run $400 to $700 for a standard single-family home. Complex properties, rural locations, and high-cost markets can push the fee above $1,000. The fee is paid upfront or rolled into closing costs on the Loan Estimate. Any specialist reports the appraiser calls for, like a structural engineer or pest inspector, cost extra.
An FHA appraisal is valid for 180 days from the effective date of the report. If the loan hasn’t closed by then, the lender can order an appraisal update rather than a fresh appraisal, and the updated report extends validity to one year from the original effective date.5U.S. Department of Housing and Urban Development. FHA INFO 2022-71 – FHA Implements Revised Appraisal Validity Period Guidance
What Happens After the Appraisal
Once the appraiser submits the report, the underwriter reviews it and the loan moves in one of three directions.
If the home meets all minimum property standards and the appraised value supports the purchase price, the property is accepted as-is and the loan proceeds to closing. Clean outcome.
More often, the appraiser identifies specific repairs that must be completed before the loan can fund. A broken window, a missing handrail on exterior steps, peeling paint on a pre-1978 home, a roof leak. The seller or buyer completes the work, the appraiser returns for a follow-up inspection, and the results go on form HUD-92051, the Compliance Inspection Report, which the lender uses to clear conditions and finish underwriting.6U.S. Department of Housing and Urban Development. HUD-92051 – Compliance Inspection Report
If the property is in such poor condition that bringing it up to FHA standards would be impractical or prohibitively expensive, the appraiser can recommend rejecting it. The appraisal gets completed on an as-is basis with a clear recommendation against FHA insurance, along with a list of major deficiencies and supporting photographs.7U.S. Department of Housing and Urban Development. HOC Reference Guide – Repair Conditions A rejection typically ends the transaction unless the buyer switches loan products or the seller commits to major repairs.
When the Appraisal Comes In Low
A low appraisal is one of the more stressful moments in an FHA purchase, and it’s where the FHA amendatory clause matters. Every FHA purchase contract must include this clause, which states that the buyer is not obligated to complete the purchase or forfeit earnest money if the appraised value comes in below the agreed sale price.8U.S. Department of Housing and Urban Development. FHA Single Family Housing Policy Handbook 4000.1 Buyer and seller both sign it before the lender can process the loan. Nobody can waive it.
You have three options when the number comes in low:
- Renegotiate the price down to the appraised value or something close to it. This is the most common resolution.
- Pay the difference in cash. The FHA loan covers only the appraised value, so any gap comes from you.
- Walk away. The amendatory clause lets you cancel the contract and get your earnest money back.
You can also choose to proceed with the purchase regardless of the appraised value. The clause preserves that right, and HUD reminds buyers within its language that the appraised value determines the maximum mortgage HUD will insure and that HUD does not warrant the value or condition of the property.
Challenging the Appraisal in 2025
If you think the appraiser missed something or got a fact wrong, the path to challenge narrowed in 2025. HUD Mortgagee Letter 2025-08 rescinded the borrower-initiated reconsideration of value requirements introduced a year earlier under ML 2024-07.9U.S. Department of Housing and Urban Development. Mortgagee Letter 2025-08 – Rescinding Multiple Appraisal Policy Related Mortgagee Letters Those rules had required lenders to establish formal borrower-challenge procedures and to disclose that right at application.
Under the restored rules, only the lender’s underwriter can formally request a reconsideration of value. The underwriter may do so when the appraiser didn’t consider information that was relevant on the date of inspection, and must supply the appraiser with all relevant supporting data, such as additional comparable sales the appraiser may have missed or corrections to factual errors. If the data wasn’t available on the appraisal date and getting it wasn’t the borrower’s fault, the borrower can’t be charged an additional fee.
In practice, your leverage now depends on your lender. You can still gather comparable sales, identify errors, and present that information to your loan officer, but the lender decides whether to pass it to the appraiser. If you suspect the appraisal was influenced by racial or ethnic bias, federal protections under the Fair Housing Act and Equal Credit Opportunity Act still apply regardless of HUD’s policy changes.
Switching Lenders Without Paying Twice
FHA appraisals attach to the property through the FHA case number, not to the borrower or the lender. If you switch lenders mid-process, the first lender must transfer the case and the appraisal to the second lender at your request, so you don’t pay for a new appraisal just because you changed lenders.10U.S. Department of Housing and Urban Development. Mortgagee Letter 09-29 – Appraisal Portability
HUD prohibits appraiser shopping, where a lender orders multiple appraisals hoping for a better value or fewer repairs. The second lender can order a new appraisal only in limited circumstances: material deficiencies in the first appraisal as determined by the new underwriter, the original appraiser being on the second lender’s exclusionary list, or delay by the first lender that would cause the borrower real harm like a lost rate lock or a missed contract deadline.
Multi-Unit Properties and the Self-Sufficiency Test
Buyers using FHA financing for a three- or four-unit property face an extra hurdle beyond the standard appraisal. The property has to pass the self-sufficiency test, which requires net rental income from all units to equal or exceed the total monthly mortgage payment, including principal, interest, taxes, insurance, and FHA mortgage insurance premiums.11U.S. Department of Housing and Urban Development. HOC Reference Guide – Rental Income
The calculation starts with the appraiser’s estimate of fair market rent for every unit in the building, including the one you plan to occupy. The lender then subtracts a vacancy factor of 25 percent, or the appraiser’s estimated vacancy rate if higher, to arrive at net rental income. If that number falls below the total monthly payment, the loan is denied regardless of your personal income. This test applies only to three- and four-unit properties. Duplexes are exempt.
The upshot: on a triplex or fourplex, the appraisal carries more weight than usual. Conservative rent estimates or a high vacancy factor can sink an otherwise qualified deal. Run these numbers before making an offer.
Recently Resold Homes and the Second Appraisal
One boundary worth knowing before you shop: FHA has anti-flipping rules for recently resold properties. If the seller has owned the home fewer than 90 days, FHA financing is generally prohibited.12U.S. Department of Housing and Urban Development. What Is HUD Doing about Property Flipping For properties resold between 91 and 180 days after the seller acquired them, a second appraisal is required when the new sale price meets or exceeds a resale price percentage threshold based on the property’s zip code. If two appraisals are ordered and the second comes in more than five percent lower than the first, the lender must use the lower value. The buyer does not pay for the second appraisal, and certain sellers, including government agencies, HUD itself, and lenders disposing of foreclosed properties, are exempt from these restrictions.