FHA Risk Assessment & Mitigation 2 — Questions and Answers
Question 1: When appraising a property in a Special Flood Hazard Area (SFHA), what does FHA require the appraiser to note?
- The property is ineligible for FHA financing regardless of flood insurance
- The flood zone designation and whether flood insurance is required (Correct answer)
- Only the distance from the nearest body of water
- That the seller must elevate the structure before closing
Correct answer: The flood zone designation and whether flood insurance is required
FHA appraisers must note SFHA designation and flag the flood insurance requirement, which lenders must verify is in place at closing.
Question 2: A property's site has a slope exceeding 15% toward the foundation. How should an FHA appraiser treat this condition?
- Ignore it if the soil appears stable
- Note it as an adverse site condition that may require repair prior to FHA financing (Correct answer)
- Automatically decline the appraisal
- Report it only if the buyer requests a structural inspection
Correct answer: Note it as an adverse site condition that may require repair prior to FHA financing
Excessive slope toward a foundation is an adverse condition that must be reported and typically corrected to prevent water intrusion and structural risk.
Question 3: Which environmental hazard requires an FHA appraiser to recommend an inspection when the home was built before 1978?
- Asbestos in roof shingles
- Lead-based paint (Correct answer)
- Underground oil tanks
- Radon gas
Correct answer: Lead-based paint
HUD requires that FHA appraisers note the potential for lead-based paint in homes built before 1978 and recommend testing when defective paint surfaces are observed.
Question 4: An FHA appraisal subject property has a cracked and settling retaining wall along the rear property line. What is the appraiser's appropriate action?
- Ignore it because retaining walls are not part of the dwelling
- Call it out as a safety hazard requiring repair before FHA loan closing (Correct answer)
- Value it as a curable functional obsolescence only
- Report it only if the crack exceeds two inches
Correct answer: Call it out as a safety hazard requiring repair before FHA loan closing
A failing retaining wall poses a safety risk and must be flagged as a required repair; FHA MPRs extend to site conditions that affect safety.
Question 5: When an FHA appraiser identifies a property in a designated Coastal Barrier Resources System (CBRS) zone, what is the primary concern?
- The property qualifies for reduced mortgage insurance premiums
- Federal flood insurance and most federal financial assistance are unavailable for the property (Correct answer)
- The property must have a seawall before FHA financing
- FHA financing is permitted with a 20% down payment
Correct answer: Federal flood insurance and most federal financial assistance are unavailable for the property
Properties in CBRS zones are ineligible for federal flood insurance under the Coastal Barrier Resources Act, which significantly limits FHA financing eligibility.
Question 6: A property is adjacent to a high-voltage electrical transmission line easement. How must the FHA appraiser address this?
- Ignore it because easements do not affect habitability
- Note the easement and assess whether it adversely affects the property's safety, utility, or marketability (Correct answer)
- Require the seller to relocate the easement before closing
- Automatically reduce the value by 10% for proximity
Correct answer: Note the easement and assess whether it adversely affects the property's safety, utility, or marketability
Appraisers must identify easements that may create safety hazards or negatively impact value and marketability, reporting them as adverse conditions if warranted.
Question 7: Which condition would most likely cause an FHA appraiser to flag a property as 'subject to repair' rather than appraising it 'as-is'?
- Dated kitchen appliances that are fully functional
- An inoperable HVAC system during a summer inspection (Correct answer)
- A cracked interior drywall patch less than one inch
- Carpet that shows normal wear and tear
Correct answer: An inoperable HVAC system during a summer inspection
An inoperable HVAC system violates FHA's requirement that mechanical systems be functional, making the property subject to repair before loan closing.
FHA Risk Assessment & Mitigation 2
When appraising a property in a Special Flood Hazard Area (SFHA), what does FHA require the appraiser to note?