FHA Appraisal Requirement

Anonymous · ‎08-17-2015

We just got our offer accepted on an amazing little house and are preparing for the FHA appraisal. The entire house is in tip top shape except our LO is nervous about a back room that is unfinished. There are brand new windows, electric and walls framed out (all done with valid permits) but it is in need of flooring (only subflooring down currently), insulation and drywall. The door that connects that room to the house is an exterior door so technically the room can be marked as an enclosed porch. We've asked family and friends with FHA experience and half say that it was pass and half say it will fail. Our LO is advising us to talk to the seller to get flooring and drywall in before the appraisal. Personally, I'd like to wait to see what the appraiser has to say and if it does fail, we can use their report to determine what exactly needs to be done in order to pass.
So now my question to two-fold. 1) Does anyone have any FHA experience with an unfinished room/porch and if so, how was it handled during the appraisal? 2) Given the situation, would you recommend doing the work ahead of time or take a "wait and see" approach?

Thanks so much!

StartingOver10 · ‎08-17-2015

@Anonymous wrote:
We just got our offer accepted on an amazing little house and are preparing for the FHA appraisal. The entire house is in tip top shape except our LO is nervous about a back room that is unfinished. There are brand new windows, electric and walls framed out (all done with valid permits) but it is in need of flooring (only subflooring down currently), insulation and drywall. The door that connects that room to the house is an exterior door so technically the room can be marked as an enclosed porch. We've asked family and friends with FHA experience and half say that it was pass and half say it will fail. Our LO is advising us to talk to the seller to get flooring and drywall in before the appraisal. Personally, I'd like to wait to see what the appraiser has to say and if it does fail, we can use their report to determine what exactly needs to be done in order to pass.
So now my question to two-fold. 1) Does anyone have any FHA experience with an unfinished room/porch and if so, how was it handled during the appraisal? 2) Given the situation, would you recommend doing the work ahead of time or take a "wait and see" approach?

Thanks so much!

I have a lot of experience with FHA loans and appraisers.

The room needs to be finished. The appraiser is not going to give you value for a room that isn't complete.

You really don't want it to end up on the appraisal as needing to be completed because it will reduce the value plus the bank will have to send the appraiser back out when the room is done and the permit is finaled (the seller gets his c/o). The only way this could be worse is if the seller is putting this room on without benefit of permit.

Anonymous · ‎08-17-2015

@StartingOver10 wrote:
I have a lot of experience with FHA loans and appraisers.

The room needs to be finished. The appraiser is not going to give you value for a room that isn't complete.

You really don't want it to end up on the appraisal as needing to be completed because it will reduce the value plus the bank will have to send the appraiser back out when the room is done and the permit is finaled (the seller gets his c/o). The only way this could be worse is if the seller is putting this room on without benefit of permit.

The addition was definitely permitted (the seller already gave us copies) so I am not too concerned with that. Plus, he gave us copies of two previous home inspections and neither mentioned any negatives on the room/porch. I feel very confident in that sense.
As far as the appraiser not using that space towards the appraisal, I don't know if that would make much difference. If its just excluded from the value, we should be good. The house has been priced under value for the area (by about $40k I was told) specifically because after 2 other offers fell through, the seller just needs it gone. We're more concerned with the appraiser not allowing the loan to move forward until that room reaches a certain standard. If you're recommending that we finish it based on your experience, that's not something to ignore but I want to make it clear that we're not worried about the actual appraisal amount as much as a hold being put on financing due to the condition of the addition.

Thank you so much for your advice! This has been a very hot topic in our house so any opinions or experiences offered to us are thrown in the ring.

mnat · ‎08-17-2015

You should pose this question on the appraisers forum. I sent you a PM with the link.

StartingOver10 · ‎08-17-2015

@mnat wrote:
You should pose this question on the appraisers forum. I sent you a PM with the link.

^^^I agree 100%., especially if it is the one I am thinking about...

I bet you get a bunch of different answers from the appraisers too!

Anonymous · ‎08-17-2015

I'm new to the forums and didn't even realize there was an appraisers section. Thank you so much! I'll be posting it up there and keeping my fingers crossed!

StartingOver10 · ‎08-17-2015

OP it is a separate forum, but very professional and they can answer/debate your question. There is a section on that forum for consumers. The rest of the forum is for appraisers only.