Home buyers tend to have a lot of questions about the Federal Housing Administration (FHA) home loan program. In particular, we receive a lot of questions relating to the home appraisal process.
A frequently asked question is: Who pays for the FHA appraisal? Does the buyer always pay for it? Or can the mortgage lender or seller pay for it? Is it negotiable?
Here’s the short answer: While most of the costs relating to an FHA loan can be negotiated, it is usually the buyer who pays for the home appraisal. After all, it is the buyer’s mortgage loan. And the appraisal is required as part of the FHA mortgage loan package. So the home buyer usually pays for it.
In-Depth: Who Pays for the FHA Home Appraisal?
The FHA loan program is managed by the Department of Housing and Urban Development, or HUD. So it is HUD that establishes all of the guidelines for the FHA loan program, and that includes requirements relating to the condition of the property.
HUD requires that a home appraisal be conducted for all FHA purchase loans. The purpose of this process is twofold:
- to determine the current market value and resale potential of the home, and…
- to ensure that the house meets all minimum property requirements.
Related: When does the appraisal occur?
How Much Does It Cost?
Any home being purchased with an FHA loan must be appraised to determine its market value. But HUD does not dictate or specify who has to pay for the property appraisal.
In some cases, the mortgage lender might offer to cover this expense as an enticement to attract customers. But more often than not, it is the home buyer who pays for an FHA property appraisal.
The good news is that home appraisals are relatively affordable, within the broader context of a home purchase. They usually cost somewhere between $300 and $400, though the price can vary based on the size of the house and other factors.
Most of the time, the lender will select an FHA-approved home appraiser without any input from the borrower, but this can vary.
What Does the Appraiser Do?
When visiting the “subject property” (which is the house being purchased), the FHA appraiser will review the overall condition and features of the home.
He will also look at comparable properties that have sold recently in the same area. This is what real estate agents referred to as “comps.” The appraiser will use these comparable sales to determine the market value of the home that is being purchased with an FHA loan.
The appraiser will also evaluate the overall condition of the house to make sure it meets HUD guidelines and requirements. HUD is primarily concerned with the health and safety of the future occupant. But his inspection will not be as in-depth, or as detailed, as what a regular home inspector would do.
We recommend that buyers have their chosen homes fully inspected by a licensed home inspector – in addition to the property appraisal that is required by HUD.
Note that they are two separate things:
- The FHA appraiser is looking out for the lender and HUD, primarily.
- A home inspector is looking out for you, as the buyer. And his inspection will be more comprehensive when compared to what the FHA appraiser does.
This article answers the question: Who pays for the FHA appraisal? We have dozens of other articles and tutorials relating to this mortgage program. You can visit our library if you would like to continue your research.