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FHA vs Conventional – an Appraisal Case Study

Have you ever wondered about the difference between an FHA appraisal and a conventional appraisal?  Here’s a case study for ya:  We recently had a borrower need to change their financing from conventional to FHA.

The conventional appraisal came in at value with no conditions.  However, when we requested the appraiser update the appraisal to make it FHA compliant, here’s the note back we received from the appraisal management company (below).  To be clear, the buyer was a contractor and fully aware of all these items.  They were buying the home with the intention of fixing it up,  We obviously weren’t going to be able to do so with FHA financing.

Hi Kyle,
I apologize for the delay.  The appraiser had to thoroughly research their report on this one.  The appraiser advised that there are going to be multiple issues with the property as FHA including the roof nearing the end of life, bathroom floor water damage, moisture barrier in crawl space may need replacement, electrical system does not conform to current code, water damage in utility room, exterior door damage to utility room damaged by insects, foundation does not conform to code, corner post embedded in soil, and the exterior concrete siding contains asbestos.

If nothing else, this is simply a gentle reminder that FHA appraisals (and VA and USDA for that matter), are a bit more focused on health, safety, and overall longterm viability of a property than conventional appraisals are.  If you have a buyer looking at a bit of a rehab project, FHA, VA, or USDA financing are likely not the way to go.

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