What Are the FHA Appraisal Guidelines and Requirements?

An FHA appraisal determines two things: how much the home is worth and whether it is safe and livable enough to meet government standards. Unlike a conventional appraisal that focuses primarily on market value, the FHA appraisal also enforces HUD's Minimum Property Requirements — a checklist of health, safety, and structural conditions that the property must pass before the loan can close. If the home fails any of these requirements, repairs are mandatory.

This guide covers exactly what FHA appraisers check, the items that most commonly cause problems, how repairs work, when pest inspections are required, and how the entire process differs from what you would experience with a conventional loan. If you are buying a home with an FHA loan, understanding the appraisal process upfront can save you weeks of delays and thousands in unexpected costs.

What Are FHA Minimum Property Requirements?

FHA Minimum Property Requirements (MPRs) are the baseline conditions a home must meet to qualify for FHA financing. HUD created these standards to protect both the borrower and the government — since FHA insures the loan, they want to make sure the collateral is a habitable, structurally sound property that will hold its value.

MPRs fall into three broad categories: safety, security, and soundness. Safety means the home cannot present hazards to the occupants — things like exposed electrical wiring, missing stair railings, or lead paint peeling off walls. Security means the property must protect occupants from the elements — the roof cannot leak, windows must function and lock, and exterior doors must be secure. Soundness means the physical structure has to be in condition that does not threaten continued use — the foundation cannot be failing, the plumbing must work, and the HVAC system must be operational.

These are not cosmetic standards. HUD does not care about ugly wallpaper, outdated countertops, or stained carpet. MPRs are specifically about whether the home is safe to live in and whether the condition of the property could cause it to lose significant value. The distinction matters because many buyers confuse FHA appraisals with home inspections. An appraisal is not a comprehensive inspection — it is a targeted review of value and minimum habitability.

What Does an FHA Appraiser Actually Check?

The FHA appraiser walks the entire property — inside and out — and evaluates it against HUD's checklist. The appraiser is a licensed professional assigned through an Appraisal Management Company (AMC), and they complete the review using HUD Form 1004 along with the FHA-specific addendum. Here is what they examine:

Exterior and Structure

The appraiser inspects the roof condition, looking for missing shingles, visible damage, and evidence of leaks. FHA requires the roof to have at least two years of remaining useful life. They check the foundation for cracks, settlement, or shifting. Grading and drainage around the property are evaluated to ensure water flows away from the foundation rather than toward it. The exterior walls must be free of significant damage, and any paint on homes built before 1978 must be intact — no peeling, chipping, or flaking.

Interior Systems and Safety

Inside the home, the appraiser verifies that all major systems function. The HVAC must heat and cool the home adequately. Plumbing must deliver hot and cold water without leaks. Electrical systems must be safe — no exposed wiring, no missing outlet covers, and the panel must be in working order. Every bedroom must have an egress window or door that allows escape in an emergency. Stairways need handrails, and elevated areas like decks and balconies require guardrails.

The appraiser also looks for evidence of water damage — stains on ceilings and walls, musty odors, and standing water in basements or crawlspaces. If there is a crawlspace, they check for adequate ventilation and that it is accessible. Bathrooms must have a toilet, sink, and either a bathtub or shower in working condition. The kitchen must have a working stove or range (unless the local market standard excludes appliances).

Environmental and Health Hazards

FHA appraisals flag potential environmental hazards more aggressively than conventional appraisals. If the home was built before 1978, any deteriorated paint is flagged as a potential lead paint hazard and must be remediated — scraped, sanded, and repainted by a certified contractor. The appraiser notes any visible evidence of termite damage, mold, or asbestos-containing materials. If the property is near high-voltage power lines, a busy highway, or an industrial site, the appraiser may note adverse site conditions that require further investigation.

The appraiser also confirms the property has safe drinking water and a functioning septic or sewer system. For homes on well water, a water quality test may be required depending on the jurisdiction. Properties with private septic systems must show evidence that the system is functional and properly maintained.

What Are the Most Common FHA Appraisal Fail Items?

Certain issues come up repeatedly in FHA appraisals, especially on older homes. Knowing what to watch for can help you evaluate a property before making an offer and avoid surprises after the appraisal is completed.

The most frequent fail items include:

• Peeling or chipping paint on pre-1978 homes — This is the single most common FHA appraisal issue. Any deteriorated paint on a home built before 1978 must be scraped, primed, and repainted before closing.
• Roof with less than two years of remaining life — Missing shingles, visible wear, or active leaks will be flagged. The seller typically must replace or repair the roof.
• Missing handrails and guardrails — Any stairway with more than two risers needs a handrail. Decks, porches, and balconies above 30 inches need guardrails.
• Non-functional HVAC — The home must have a permanent heat source that adequately heats the living spaces. Window units alone do not satisfy this requirement in most markets.
• Exposed or hazardous wiring — Open junction boxes, missing outlet covers, and knob-and-tube wiring that is visibly deteriorated will be flagged.
• Broken windows — Cracked or broken window panes must be replaced. Windows must also open, close, and lock properly.
• Water intrusion and crawlspace issues — Standing water, active leaks, moisture damage, and inadequate crawlspace ventilation are all common flags.
• Termite damage — Visible wood damage from termites or other wood-destroying insects triggers a mandatory pest inspection and repair requirement.

According to data from the National Association of Realtors, approximately 25% to 30% of FHA appraisals come back with at least one required repair. That does not mean the deal falls apart — it means there is an additional step to complete before closing. Most repairs are relatively minor and cost between $200 and $2,000 to resolve. The key is identifying potential issues early, ideally during your home inspection, so you can negotiate repairs with the seller before the appraisal even takes place.

How Do FHA Appraisal Repairs Work?

When the appraiser flags a condition that does not meet MPRs, it becomes a required repair. The loan cannot close until the repair is completed, re-inspected (if required by the lender), and the appraiser confirms the condition has been corrected. There is no option to waive these repairs — they are a condition of the FHA insurance.

In most transactions, the seller pays for and completes the required repairs. This is the simplest path because the seller already has access to the property and contractors. The repair work is completed, the appraiser does a re-inspection (usually costing $150 to $200), and the loan proceeds to closing.

If the seller refuses to make repairs, you have several options:

• Pay for the repairs yourself — You can hire contractors to complete the work, though this is less common since you do not own the property yet.
• Negotiate a seller credit — The seller provides a closing cost credit, and you arrange for repairs to be completed. FHA allows seller concessions up to 6% of the purchase price.
• Use an FHA 203(k) rehabilitation loan — For homes that need more extensive work, the FHA 203(k) program rolls the purchase price and repair costs into a single mortgage. This is ideal for properties with $5,000 or more in needed repairs.
• Walk away — If repairs are too costly or the seller will not cooperate, you can exercise your right to cancel the contract. The FHA amendatory clause protects your earnest money in many of these situations.

One important note: the FHA appraisal stays with the property through the FHA case number for 180 days. If you walk away and another FHA buyer comes along within that period, the same appraisal — including all the flagged conditions — follows the property. This gives sellers a strong incentive to cooperate with repairs rather than lose FHA buyers entirely.

Does FHA Require a Pest Inspection?

FHA does not require a termite or pest inspection on every transaction nationwide. However, if the appraiser observes evidence of active infestation or wood-destroying insect damage, a Wood Destroying Insect (WDI) report becomes mandatory. This is triggered by the appraiser's observations — visible mud tubes, damaged wood, sawdust piles, or hollow-sounding structural members.

Some states require WDI inspections on all FHA transactions regardless of what the appraiser observes. In many southern and southeastern states where termite risk is high, lenders routinely require pest inspections as part of their standard FHA process. The cost typically runs between $75 and $150 for the inspection itself.

If the WDI report finds active infestation or damage, treatment and repair become required conditions before closing. Treatment involves a licensed pest control company eliminating the active infestation, and any structural damage caused by the insects must be repaired to meet MPR standards. The cost varies widely — a simple treatment might run $200 to $500, while repairing structural damage from extensive termite activity can cost several thousand dollars.

When buying an older home, having your own home inspection completed before the appraisal can give you advance warning of potential pest issues. If termite damage is discovered during inspection, you can negotiate treatment and repair costs with the seller before the appraisal adds them as mandatory conditions.

How Does an FHA Appraisal Differ from a Conventional Appraisal?

Both FHA and conventional appraisals establish the property's market value using comparable sales. The fundamental difference is that FHA appraisals add the MPR layer — a set of health, safety, and structural requirements that conventional appraisals do not enforce.

Here is how they compare on specific points:

Factor	FHA Appraisal	Conventional Appraisal
Primary purpose	Market value + MPR compliance	Market value only
Peeling paint (pre-1978)	Must be remediated	Generally not flagged
Roof condition	Must have 2+ years of life	Noted but rarely required repair
Handrails/guardrails	Required if missing	Not typically flagged
HVAC function	Must be operational	Noted but not always required
Water/septic	Must be functional; well test may be required	Noted; testing less common
Pest inspection	Required if damage observed	Rarely required
Appraisal validity	180 days, tied to FHA case number	Typically 90-120 days
Cost	$400–$700 depending on market	$350–$600 depending on market

The FHA appraisal is not necessarily harder to pass — it is more thorough. Newer homes in good condition typically sail through without any issues. The challenges arise with older homes, deferred maintenance properties, and fixer-uppers where decades of wear create conditions that MPRs will flag. If you are looking at homes built before 1980, anticipate the possibility of appraisal-related repair requirements and factor that into your offer strategy.

What Happens If the FHA Appraisal Comes in Low?

A low appraisal means the appraiser determined the home is worth less than the agreed-upon purchase price. This creates a gap because FHA will only insure a loan based on the appraised value, not the contract price. If you agreed to pay $250,000 but the appraisal comes in at $235,000, FHA will base your loan on $235,000.

You have several options when this happens:

• Negotiate a price reduction — Ask the seller to lower the price to match the appraised value. This is the most common resolution.
• Pay the difference in cash — You can cover the $15,000 gap out of pocket, though this defeats the purpose of a low down payment loan for most buyers.
• Request a Reconsideration of Value (ROV) — Your lender can submit additional comparable sales that support the higher value. If the appraiser agrees, they may revise the value upward.
• Walk away — The FHA amendatory clause gives you the right to cancel the contract and get your earnest money back if the appraised value is below the purchase price.

According to Fannie Mae's Appraisal Data, roughly 8% to 12% of purchase appraisals come in below the contract price in any given quarter. It is not rare, and it is not the end of the deal. Most low appraisals are resolved through price negotiation, especially in balanced or buyer-friendly markets where sellers have fewer competing offers.

How Can You Prepare for an FHA Appraisal?

Preparation is the best defense against appraisal delays. If you are selling to an FHA buyer — or buying a home you suspect may have condition issues — these steps can prevent common problems:

• Get a pre-listing or pre-offer inspection — A general home inspection will reveal most MPR issues before the appraiser arrives. Cost: $300 to $500.
• Address peeling paint proactively — If the home was built before 1978, check all interior and exterior painted surfaces. Scrape, prime, and repaint any deteriorated areas.
• Ensure all systems function — Turn on the HVAC, run water in every faucet, flush toilets, and test the water heater. The appraiser will check all of these.
• Install missing handrails and guardrails — This is an inexpensive fix that eliminates one of the most common flags.
• Clear crawlspace access — The appraiser needs to visually inspect the crawlspace. Remove any debris or obstructions blocking the access point.
• Fix broken windows and doors — Replace cracked panes and ensure all windows and exterior doors open, close, and lock properly.
• Check the roof — If there are visible issues, consider getting a roof certification from a licensed roofer before the appraisal. A certification stating the roof has 3+ years of life can satisfy the appraiser's concern.

Working with a lender who understands FHA appraisals — and who can guide you on what to look for before making an offer — is one of the most valuable things you can do. At Bayou Mortgage, we review the property listing and any inspection reports before the appraisal is ordered, and we flag potential MPR issues early so there are no surprises.