FHA vs. Conventional Appraisals
Quick Answer
Understanding why a missing handrail or a single patch of peeling exterior paint can instantly derail an FHA mortgage approval.
The Conventional Appraisal (Value-Based)
When a buyer uses a standard Conventional Loan (backed by Fannie Mae or Freddie Mac), the bank hires an appraiser for one primary reason: To ensure the home is worth the amount of money they are lending.
A conventional appraiser measures the square footage, notes the number of bedrooms, compares the home to recent sales in the neighborhood (comps), and determines a market value. They do not care if the carpet is stained, if the paint is peeling, or if a door hinge squeaks. As long as the home is structurally sound and habitable, the conventional appraiser passes it.
The FHA Appraisal (Safety-Based)
An FHA loan is insured by the Federal Housing Administration, designed for first-time buyers with low down payments. Because the government is taking on more risk, an FHA appraiser acts as both a value estimator and a strict safety inspector.
FHA guidelines mandate that the property meets Minimum Property Standards (MPS). If the home fails these safety checks, the appraiser halts the loan, and the seller must fix the issues before closing.
Common FHA Deal-Killers
- Peeling Paint (The Pre-1978 Rule): If the home was built before 1978, even a microscopic chip of peeling paint on a window sill or exterior siding instantly fails the appraisal due to lead-paint fears. The seller must scrape and repaint it.
- The Roof Life: The appraiser must visibly verify the roof has at least 3 years of remaining physical life. If edges are curling or multiple shingles are missing, the loan dies.
- Handrails: Any staircase with three or more steps (including the deck or front porch) must have a secure, grippable handrail.
- Exposed Wiring: Any uncapped wires, missing junction box covers, or open electrical splices in the basement will trigger a failure.
- Utilities: The water and electricity must be turned ON during the appraisal so the appraiser can flush the toilets and run the furnace.
Which Offer Should a Seller Choose?
If you receive two identical $300,000 offers—one Conventional and one FHA—the Conventional offer is infinitely more attractive to a seller. The Convnetional buyer's appraisal will be smooth and purely value-driven. The FHA buyer's appraisal will result in a mandatory checklist of nitpicky repairs that you must fix before you are legally allowed to close. If your home is an older "fixer-upper," you may not even be able to legally sell to an FHA buyer without a massive overhaul.