What Are the Differences Between a Conventional and a HUD Appraisal?

Any time that a person plans to use the FHA to help them buy a house, the property must be inspected and appraised by an HUD-approved appraiser. Not only does this person inspect the house to determine its true current market value, they are inspecting it to ensure that the property meets at least the minimum HUD property standards.

So, what is an appraisal? In this particular case, the appraiser is there to evaluate the house in question, both on the exterior and interior. His goal is to determine the current market value of the property in comparison to similar properties in the area. Their role is also to make note of any repairs that are needed and include them in a report that is sent to the mortgage lender so that they can review the information and take any necessary actions.

The Big Difference

One thing that many homeowners are surprised to find is that an FHA/HUD appraisal is far more detailed than that requested from a conventional appraisal. The reason for this is actually quite simple. For a conventional mortgage, the appraiser is only interested in the condition of the home as it relates directly to its market value. During an FHA/HUD appraisal, the appraiser is not only assessing the market value of the property, they are also making sure it meets certain strict health and safety standards established by HUD.

There is more to this difference than simply making note of the various repairs needed. Any appraiser can find things like loose railings, peeling paint, or loose carpets. When a HUD inspector finds these safety and health issues, they must be fixed properly before any type of FHA loan can be funded. Basically what this means is that the loan and purchase process will place in a holding status until all of the required repairs are completed. This situation does not occur when the buyer is using a conventional mortgage.

Do Your Own Inspection First

Given the extent of an FHA/HUD inspection, you would be well-advised to pay for a professional appraisal and inspection before the HUD appraiser shows up. In fact, you will find that the FHA and HUD both advise borrowers to do this. Along with this, all FHA/HUD borrows are required to sign a disclosure that reads, “I understand the importance of getting an independent home inspection. I have thought about this before I signed a contract with the seller for a home.”

Just to make sure things are clear, while HUD does require an appraisal that includes a health and safety inspection, they do not require a regular home inspection to be completed. However, for your own protection, they certainly recommend it quite strongly. Perhaps it is this difference that keeps many buyers and sellers overly confused about the home inspection and appraisal process. You can learn all about the HUD appraisal process in the HUD Handbook 4150.2.