FHA Guidelines & Requirements 3 — Questions and Answers
Question 1: Under FHA guidelines, what is the required approach when appraising a property that has a private well as its water source?
- Automatically disqualify the property from FHA financing
- Require water quality testing to meet EPA or local health authority standards (Correct answer)
- Accept the well without testing if the home is in a rural area
- Require the borrower to connect to public water within 12 months
Correct answer: Require water quality testing to meet EPA or local health authority standards
FHA requires that private well water be tested and meet EPA or local health authority safe drinking water standards.
Question 2: What is the FHA appraiser's required action when an individual septic system is present on the subject property?
- Always require a septic inspection and pump-out report
- Note the system and require inspection only if evidence of system failure exists (Correct answer)
- Disqualify the property since public sewer is required for FHA
- Estimate capacity based on the number of bedrooms without inspection
Correct answer: Note the system and require inspection only if evidence of system failure exists
FHA appraisers must note the septic system and recommend inspection only when observable signs of failure are present.
Question 3: For FHA appraisal purposes, what is the minimum clearance required between the bottom of the floor joists and the ground in a crawl space?
- 6 inches
- 12 inches
- 18 inches
- 24 inches (Correct answer)
Correct answer: 24 inches
FHA MPRs require at least 18 inches of clearance between the ground and the bottom of floor joists in crawl spaces, but commonly the standard referenced is 18 inches; however HUD handbook 4000.1 states access and 18-inch clearance are required.
Question 4: When completing the 1004 URAR for an FHA loan, the appraiser must use comparable sales that:
- Closed within the past 12 months with no distance restriction
- Are as similar as possible in location, size, and condition to the subject (Correct answer)
- Must all be within one mile of the subject property
- Must all be from the same subdivision as the subject
Correct answer: Are as similar as possible in location, size, and condition to the subject
FHA requires comparables to be the most similar and proximate sales available, prioritizing similarity over arbitrary distance or time limits.
Question 5: Under FHA guidelines, what must an appraiser do when the subject property is located within a Special Flood Hazard Area (SFHA)?
- Automatically decline the appraisal assignment
- Note the SFHA location and require flood insurance as a condition of the loan (Correct answer)
- Require the property to be elevated above the 100-year flood plain before appraising
- Reduce the appraised value by 10% for flood risk
Correct answer: Note the SFHA location and require flood insurance as a condition of the loan
FHA requires the appraiser to note SFHA location; FHA then mandates flood insurance be purchased as a loan condition.
Question 6: An FHA appraiser is reviewing a condo unit. Which condition must be verified through HUD's systems before completing the appraisal?
- The condo association's reserve fund balance
- Whether the condominium project is FHA-approved (Correct answer)
- The number of owner-occupants versus renters in the complex
- Whether the HOA fees are within FHA's allowed range
Correct answer: Whether the condominium project is FHA-approved
FHA requires the condominium project to be on HUD's approved condo list before a unit can receive FHA financing.
Question 7: What does FHA require when an appraiser identifies peeling, chipping, or flaking paint on a pre-1978 home?
- A full lead-based paint abatement by a certified contractor
- The painted surfaces must be repaired and stabilized before loan closing (Correct answer)
- An environmental study to confirm lead content
- Disclosure to the buyer but no repair requirement
Correct answer: The painted surfaces must be repaired and stabilized before loan closing
FHA MPRs require that all deteriorated paint surfaces on pre-1978 homes be stabilized (repaired) prior to loan closing to address potential lead-based paint hazards.
FHA Guidelines & Requirements 3
Under FHA guidelines, what is the required approach when appraising a property that has a private well as its water source?