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Can You Avoid an Appraisal on an FHA Loan? It all depends…

Key Takeaways

  • Lenders utilize home appraisals and inspections to determine how much money they will lend you. These are mandatory for
  • If the assessment is lower than what you offered, the appraisal contingency permits you to withdraw without penalty.
  • Only waive the appraisal contingency if it is the only option to get your ideal house. First, consult with your real estate agent.

Today’s housing market can be fiercely competitive. Many Americans want to own a home and are willing to pay a higher price to ensure they realize the American dream.

Because of the rigorous appraisal and inspection process required for the government-backed loan, FHA purchasers are sometimes viewed unappealing to sellers in this competitive market.

What happens if FHA buyers offer to pay extra in the hopes of securing their ideal home, but the appraised value of the property turns out to be lower? Will the purchase be completed? Can you avoid the assessment procedure entirely? If you’re looking for an FHA loan and have these inquiries, this article has the answers.

Appraisals are being waived.

FHA loans have numerous advantages, particularly for those with a less-than-perfect credit history. With lower credit scores and down payment requirements, it’s no surprise that it’s a popular loan option for first-time homebuyers with low to middle-incomes.

Although the requirements and qualification process is adaptable, the appraisal process is not.

What Is an FHA House Appraisal?

A house appraisal is an unbiased assessment of a property’s market value. The appraisal process begins when a buyer and seller reach an agreement on a sales price, the seller accepts the buyer’s offer.

Whichever bank or approved FHA lender you find, a home appraisal is almost always required. This is done to ensure that the money loaned is only used for the home purchase.

Note that for streamline refinancing, since you have already gone through the FHA application process, an appraisal is no longer required.

Home Inspection for FHA

There is an additional home inspection with FHA home appraisals. On top of determining the market value of the home, they will also determine whether the property is fit to live in.

The inspector will have a list of items to look for. This includes the property’s structure quality, interior and exterior condition, potential hazards, and lot condition, among other things.

If the repairs will exceed $5,000,, the buyer can avail of the FHA 203(k) loan instead. This loan type allows the buyer to combine the mortgage and repair costs into a single loan.

Before the buyer may proceed with the loan, the property must pass the inspection. Sellers that do not want to deal with the added inconvenience of completing specific repairs do not accept offers from FHA purchasers.

So, can a buyer get rid of the appraisal?

No, they can’t. It is stipulated in the FHA guidelines that appraisal or inspection contract contingencies cannot be waived.

Waiving Appraisal Contingency

A bank or approved lender will make a mortgage decision based on the lower of the purchase price or appraised value of the property.

If the appraised value of a property is less than what you paid for it, you must make up the difference yourself.

This is when the appraisal contingency enters the picture.

The appraisal contingency financially protects the buyer. If the appraisal comes in lower than what you offered, the contingency permits you to pull out without penalty.

Buyers typically place an escrow deposit of roughly 1-3% of the property’s value to demonstrate their commitment to acquiring the home. The funds will be used to pay off the loan.

You will not get your deposit if the appraisal contingency is not met, and you are legally required to complete the home purchase.

So why would anyone agree to waive the appraisal contingency if it protects them?

Homes sell quickly in a hot market because supply cannot keep up with the high demand. This advantages sellers because they can choose from numerous offers and select the most appealing one.

Some desperate home purchasers waive the appraisal contingency in this case, indicating that they are willing to take the risk if the appraisal comes in lower than the negotiated purchase price.

The FHA will not pay for the property if the appraisal is less than the stipulated purchase price. Aside from withdrawing, you have three other options:

  1. Pay the full amount out of pocket. If you want to win a desirable home, you can make up the difference with your own money. This indicates you’re paying more for the house than it’s worth.
  2. The seller will lower the price. You can try to negotiate a lower price with the seller to meet the appraised value of the home.
  3. Meet in the middle. You can reach an agreement with the seller to meet halfway. For example, if the appraised value and the purchase price differ by $10,000, you can agree to pay $5,000 more and the seller will agree to lower the price by $5,000.

When Should an Appraisal Contingency Be Waived?

A buyer needs an appraisal contingency to protect themselves financially in the event that the appraised value is less than the selling price. This is why waiving it should be based on an informed and well-considered decision.

When there is a “seller’s market,” which means more competition for the home of your dreams, this is the most common scenario in which this decision is made. Waiving your appraisal contingency could make your offer more appealing.

However, before you do so, check with your real estate agent to see if this is the only way to secure the property.

In conclusion

Most lenders use appraisals to determine the amount of loan they will provide to the borrower for the purchase of the property. FHA valuations are more stringent since they include an additional house examination that must fulfill health and safety criteria. These appraisals are required for FHA loans and cannot be waived in most cases.

If the appraised value is less than the selling price, the buyer has three options: pay the difference out of pocket, negotiate with the seller to lower the property price, or meet in the middle. The buyer can potentially walk away from the transaction because the appraisal contingency permits the borrower to pull out without penalty.

Do you still have questions? Please contact us as soon as possible so that we can assist you!


Is it possible to get an FHA loan for more than the appraised value?

No, you cannot obtain an FHA loan for more than the appraised value. The FHA will base their loan on either the appraised value or the selling price, whichever is lower.

What Happens If an FHA Appraisal Is Rejected?

If a property is unable to meet FHA standards, the only option is to repair it. The appraiser will provide the homeowner with a list of any problems discovered and will identify what needs to be repaired.

The FHA can insure the buyer’s mortgage if the homeowner makes the necessary repairs. However, this can take a long time, especially if the defects are serious.

What Qualifies a House for an FHA Loan?

Many factors can contribute to a home’s inability to be insured with an FHA loan.

  1. Loan limits. Depending on where you live and how many units you have, the limit of your loan may vary. When looking for a new home, keep these constraints in mind. A high-priced home may not be eligible for an FHA loan.
  2. Condition of the property. The lender will decide whether to approve a loan based on the appraiser and inspector’s assessment of the home’s condition. If the house “fails” the inspection and the seller does not agree to make the necessary repairs, it will be ineligible for an FHA loan.
  3. Property type. Condominiums are the most common property type rejected by FHA loans because they only allow HUD-approved complexes. These complexes must meet HUD financial stability and hazard and liability insurance standards.Lenders utilize home appraisals and inspections to determine how much money they will lend you. These are mandatory for FHA loans and cannot be waived.