A home won’t pass an FHA inspection when the appraiser finds conditions that violate HUD’s Minimum Property Standards for safety, structural soundness, or habitability. The most common reasons a property fails involve the roof, foundation, heating, plumbing, electrical system, deteriorating lead-based paint in older homes, bedroom egress, missing handrails, well and septic separation, and site hazards like power lines over the dwelling. Below is what appraisers flag, and what you can safely ignore.
Foundation and Structural Problems
Significant horizontal or vertical foundation cracks that suggest soil movement or concrete failure will trigger a requirement for a structural engineer’s report. Moisture seepage or standing water in a crawlspace or basement points to grading or drainage problems that must be corrected before the loan proceeds. Sagging floors, bowing walls, and other visible signs that the structure is shifting raise the same concern.
Access is its own trap. The appraiser has to visually examine the crawlspace and attic to check rafters, joists, and insulation. Blocked or cluttered access points mean the appraiser can’t verify these conditions, and the report will condition on clearing the obstruction and returning for a follow-up. Sellers create avoidable delays by boarding up hatches or piling storage in front of them.
Roof Condition
The roof must keep moisture out and have at least two years of remaining physical life. Missing shingles, visible holes, active leaks, and extensive wear fail the standard. The appraiser also performs a head-and-shoulders inspection of the attic, looking for water stains on the decking or daylight through the roof structure.
Layering is a separate issue. Many local building codes prohibit a third layer of roofing material over existing layers because of the added weight. If the appraiser sees three layers, the property will likely need a full tear-off and reroof before closing. Even with two layers, curling, granule loss, or soft spots can push the appraiser to conclude the remaining life is inadequate.
Deteriorating Paint in Homes Built Before 1978
Any home built before 1978 gets extra scrutiny for lead-based paint. The appraiser must document the condition and location of all defective paint, which HUD defines as paint that is cracking, scaling, chipping, peeling, or loose. Even a small patch of deteriorating paint on a window sill or door frame triggers a mandatory repair. The affected surfaces must be corrected in compliance with 24 CFR Part 35 and any applicable EPA lead-safe work practices before the loan can close.1eCFR. 24 CFR Part 35 – Lead-Based Paint Poisoning Prevention in Certain Residential Structures
Homes built after 1978 get a pass on paint condition. Peeling or chipped paint in a post-1978 home is treated as cosmetic and does not require repair for FHA purposes.
Other Environmental Hazards
Visible mold growth in living areas or basements signals a moisture problem that needs professional remediation. Friable asbestos that is damaged or exposed must be encapsulated or removed. Properties with soil contamination from old fuel storage, proximity to toxic chemical sources, or other environmental risks may be rejected until the hazard is fully addressed and documented.
Heating, Plumbing, and Electrical Systems
Every mechanical system must be operational at the time of the appraisal. If the utilities are shut off, the appraiser will condition the report on a follow-up once everything is turned on and running, which adds time and cost.2HUD Archives. HUD HOC Reference Guide – Utilities Not On
Heating
The heating system must adequately heat all living areas. A broken furnace, an undersized unit, or a system that can’t maintain safe temperatures throughout the home fails. Air conditioning isn’t required unless local conditions make the home uninhabitable without it. The appraiser is looking for a permanently installed heat source, not a space heater plugged into a bedroom outlet.
Plumbing
Plumbing must deliver a continuous supply of safe, potable water and dispose of waste without backups or leaks. Appraisers check water pressure at fixtures and confirm sinks, toilets, and showers drain properly. Significant corrosion in supply or waste lines, evidence of sewage backup, and visible leaks causing water damage all require professional repair. A minor faucet drip is usually treated as cosmetic and won’t stop the loan.
Electrical
The electrical system must safely provide adequate power for lighting and mechanical equipment throughout the home.3U.S. Department of Housing and Urban Development. FHA Single Family Housing Policy Handbook 4000.1 Frayed wiring, exposed conductors, improper modifications to the service panel, and other fire or shock hazards fail immediately. The main service panel must have sufficient capacity for the home’s needs. Double-tapped breakers, missing knockouts, and evidence of amateur electrical work are red flags appraisers document routinely.
Kitchen and Included Appliances
Every living unit must have kitchen facilities that include at least a sink with potable running water and a stove utility hookup.3U.S. Department of Housing and Urban Development. FHA Single Family Housing Policy Handbook 4000.1 A missing stove hookup or a kitchen without running water fails outright. If a dishwasher, range, or built-in microwave is staying with the home and contributes to appraised value, it must be operational. A broken built-in oven the seller is including in the sale price will need to be repaired or replaced before closing.
Interior Safety Items
Handrails
Handrails are required on any stairway with four or more risers.4U.S. Department of Housing and Urban Development. NSPIRE Standard – Handrail A missing, loose, or improperly attached railing has to be corrected before closing, and this applies to both interior and exterior stairways. The fix is cheap; skipping it hands the appraiser an easy reason to condition the report.
Bedroom Egress
Every bedroom needs at least one window large enough for an occupant to escape through in an emergency. Windows painted shut, too small, or positioned too high off the interior floor fail. Security bars are allowed only if they have a quick-release mechanism operable from the inside without keys or tools. Basement bedrooms are where this comes up most, and enlarging an opening to comply can get expensive.
Water Heater Relief Valve
Water heaters must have a temperature and pressure-relief valve with a discharge pipe extending to the floor or routed to the exterior. A missing valve or an improperly terminated discharge line is a straightforward failure, though the repair itself is inexpensive.
Crawlspace Ventilation
Crawlspaces need adequate ventilation to prevent moisture buildup and gas accumulation. Excess moisture accelerates wood rot, attracts pests, and can lead to mold above. Inadequate ventilation or standing water in the crawlspace will draw a correction requirement.
Site and Exterior Conditions
Drainage and Access
Water must flow away from the foundation, not toward it. Poor grading that causes pooling or erosion along the structure is a common fail. The property also needs safe, permanent, all-weather pedestrian and vehicle access from a public or private street so emergency services can reach the home.
Overhead Power Lines
Overhead electric transmission lines cannot pass directly over any dwelling, structure, or improvement, including pools. If they do, the line must be relocated before the property is FHA-eligible. The residential service drop also cannot pass directly over a pool, spa, or water feature. When improvements sit within an easement area, the lender must obtain a certification from the utility or local regulatory agency confirming the setup meets local safety standards.
Encroachments
The home, garage, and other improvements cannot encroach onto an adjacent property, right-of-way, utility easement, or building restriction line. A neighbor’s structure encroaching onto the subject property creates the same problem. Fence encroachments are the one exception, and only if they don’t affect marketability.3U.S. Department of Housing and Urban Development. FHA Single Family Housing Policy Handbook 4000.1
Swimming Pools
Pools must comply with all applicable local ordinances.3U.S. Department of Housing and Urban Development. FHA Single Family Housing Policy Handbook 4000.1 In practice that usually means a barrier or fence meeting local code, functioning gates with self-closing and self-latching hardware, and no obvious safety hazards like broken decking or exposed wiring. An empty or winterized pool isn’t automatically a problem, but one in visible disrepair can trigger additional requirements.
Well and Septic Separation
Private wells and septic systems bring additional requirements that trip up transactions regularly. The well must sit at least 100 feet from the septic drain field. If state or local regulations require greater distance, those apply instead. FHA will accept state or local standards only if they require at least 75 feet of separation.5U.S. Department of Housing and Urban Development. Mortgagee Letter 2002-25 – Minimum Distance Requirements Between Private Wells and Sources of Pollution
Well water must meet EPA safe drinking water standards, which typically means testing for lead, nitrates, nitrites, and total coliform bacteria. Total coliforms must be absent, and the other contaminants must fall below EPA maximum limits. A failed water test doesn’t automatically kill the deal, but the water source has to be treated and retested before the loan can proceed. Treatment costs vary widely by contaminant and system.
Termite and Pest Damage
FHA doesn’t require a termite inspection on every transaction, but one becomes mandatory when there’s evidence of active infestation, when the state or local jurisdiction requires it, or when the property sits in a high-risk termite zone identified by HUD.6HUD Archives. HOC Reference Guide – Pest Control Mud tubes on the foundation, damaged wood, or other signs of wood-destroying insects make the inspection a condition of the report regardless of location.
Active infestation must be treated by a licensed pest control professional, and any structural damage from the infestation has to be repaired before closing. The appraiser doesn’t perform the pest inspection; a separate specialist handles that. Sellers in termite-prone areas often benefit from getting this inspection done before listing.
What Won’t Fail an FHA Appraisal
Not everything the appraiser notices becomes a required repair. Cosmetic defects that don’t affect health, safety, or structural soundness get noted but don’t block the loan. Worn or stained carpet, outdated fixtures, mismatched tile, holes in window screens, cracked window glass, and minor plumbing drips that aren’t causing water damage all fall in this bucket. Peeling or chipped interior paint in homes built after 1978 does too.
Appraisers still factor cosmetic condition into overall valuation, so a home with significant wear may appraise lower than expected. There’s a meaningful difference between the appraiser noting “the kitchen is dated” and flagging a safety hazard that must be fixed. The first affects price. The second stops the process.
What Happens If the Property Fails
A failed FHA appraisal doesn’t necessarily end the deal. The report specifies exactly which conditions need correction, and the seller typically handles the repairs to keep the transaction moving. Once the work is complete, the appraiser performs a re-inspection to verify it meets the standard. That adds time and a re-inspection fee, but it resolves the issue.
Escrow Holdbacks
When required repairs cost less than $5,000, FHA allows an escrow holdback where funds are set aside at closing and released to pay for the work after the transaction closes. The home must still be habitable and safe without the repairs done. Work under a holdback typically has to be finished within 30 days of closing. For HUD-owned foreclosure properties, the holdback limit rises to $10,000.
FHA 203(k) Rehabilitation Loans
If the property needs more extensive work, the FHA 203(k) rolls the purchase price and repair costs into a single mortgage. The Limited 203(k) allows up to $75,000 in repair financing for less complex projects.7U.S. Department of Housing and Urban Development. 203(k) Rehabilitation Mortgage Insurance Program Types The Standard 203(k) has no dollar cap and covers major structural rehabilitation, but requires a HUD-approved consultant to oversee the project. It’s more paperwork-intensive, but it lets buyers purchase properties that would otherwise be ineligible for FHA financing.