FHA Appraisal Rules for Basements

The appraisal process is a very important part of buying a home. When you are budgeting and planning for your loan, you may want to set aside some extra funds in case there are corrections required as the result of an appraisal.

You may not be on the hook for those corrections, but if you are trying to negotiate with a seller in a competitive market and you really want that house, negotiating who pays for the appraisal correction might be something to consider.

With that in mind, what are the FHA appraisal rules for a home that comes with a basement or crawlspace? The FHA appraisal process includes specific standards in this area which must be met. In cases where there are corrections required as a condition of loan approval, those corrections must be made and inspected--it’s not done on an honor system.

The basic rules in this area begin with the general condition of the foundation--it must be adequate to properly support the home.

HUD 4000.1 contains rules for the lender and appraiser. It states, “The Mortgagee must confirm that all foundations will be serviceable for the life of the Mortgage and adequate to withstand all normal loads imposed.” And what happens if this is not true? 

The FHA list of “defective conditions” for basements, crawlspaces, and the foundation includes:

“…evidence of possible structural failure (e.g., settlement or bulging foundation wall, unsupported floor joists, cracked masonry walls or foundation)” 

Such conditions would be noted by the appraiser--corrections are recommended where feasible but such corrections are not always possible. If the problems cannot be corrected, the home cannot qualify for an FHA mortgage.

The foundation and the basement should be “serviceable” over the entire duration of the loan term or must be repaired or modified to make that possible. 

According to HUD 4000.1, “The Appraiser must perform a visual observation of the foundation and Structure of the improvements and report those results.” In cases where the FHA appraiser detects a structural issue, HUD 4000.1 says the Appraiser must “address the nature of the deficiency in the appraisal where physical deficiencies or adverse conditions” are reported and which may demand an inspection.

Basement issues may include things not directly related to the structural soundness of the foundation. For example, sump pump systems must be suitable to properly service the home and must be in good repair. If the appraiser notes the sump pump system does not meet these basic requirements, corrections are likely to be required in the appraisal report.

Any evidence of excessive moisture in a basement or crawlspace is an area of concern for the appraisal. If you note standing water, trickling water, or very damp basement walls when you do your initial walkthrough of any property, you can expect the appraiser to note the same problems.

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