What Fails an FHA Appraisal? 7 Red Flags to Fix First

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Direct answer

Appraisals stall when a home has safety or habitability problems the appraiser must report. Seven common red flags are peeling paint on pre-1978 homes, missing stair handrails, a non-working heating system, an active roof leak, exposed wiring, a water heater without a proper relief valve and pipe, and a wet or unventilated crawlspace.

I am Ed Drost, a Maryland State Certified Residential Appraiser and FHA appraiser. I have appraised homes across Baltimore City and Baltimore, Carroll and Harford counties since 1989, and I answer these questions every week for buyers, sellers and families. This article is part of our Baltimore appraisal Q&A series.

What are the seven red flags?

FHA loans follow HUD's minimum property requirements, found in the HUD Single Family Housing Policy Handbook 4000.1. The appraiser inspects the home, reports what they observe, and the lender decides what must be repaired before closing. These seven items cause the most delays:

1. Peeling or chipping paint (homes built before 1978)

Deteriorated paint on a pre-1978 home is a possible lead hazard. For FHA, defective paint surfaces generally have to be repaired, usually by scraping, prepping and repainting using lead-safe work practices. Work on pre-1978 homes by a contractor should follow EPA lead-safe rules.

2. Missing or loose stair handrails

Stairs with several steps, inside or outside, are expected to have a secure handrail. Missing or loose rails are quick to fix, and a common reason for a repair condition on older Baltimore homes with steep basement and porch steps.

3. A heating system that does not work

A home needs an operating permanent heating system adequate for the climate. Air conditioning is not required by FHA, but a dead furnace or boiler is a problem. Have the system serviced and make sure it runs on inspection day.

4. An active roof leak or a roof near the end of its life

Water stains, soft spots, missing shingles or an obviously worn roof can trigger a repair or a roofer's inspection. Fix leaks and get a short written statement from a licensed roofer if the roof's condition is in question.

5. Exposed or unsafe electrical wiring

Open junction boxes, missing cover plates, dangling wires, and open or damaged electric panels are safety issues. A licensed electrician can usually fix them quickly.

6. A water heater without a proper relief valve and pipe

The temperature-and-pressure relief valve needs to be present, with a discharge pipe that runs down toward the floor. Missing or capped valves are a common and inexpensive fix by a plumber.

7. A wet, unventilated or damaged crawlspace

Standing water, heavy moisture, missing vents or access, signs of active wood damage or pest activity can lead to inspections. Fix drainage, restore vents or access, and be ready to provide a pest report if required.

Quick reference table

Red flag	Why it matters	Typical fix
Peeling paint, pre-1978	Possible lead hazard	Lead-safe scrape, prep, repaint
No stair handrail	Fall hazard	Install secure rail
Heat not working	Habitability	Service or repair system
Roof leak	Water damage, safety	Repair; roofer's statement
Exposed wiring	Shock and fire hazard	Electrician repair
Water heater relief valve	Scald and explosion hazard	Install valve and discharge pipe
Wet or unvented crawlspace	Moisture, structure	Drainage, vents, inspection

What happens if the appraiser finds one?

The appraiser reports the issue. The report may be completed "subject to" the repair, and the lender will usually require proof the work is done, often with a re-inspection by the appraiser, before closing. That can add days to the schedule, so catching these problems early matters. If a home needs more than minor work, other FHA programs, such as renovation loans, may be an option. Ask your lender.

Is a conventional appraisal different?

The rules are less detailed, but the appraiser still has to report safety and condition problems that affect the value or the property's livability, and a lender may ask for repairs before closing. Many sellers find that a home that would pass an FHA inspection also avoids conventional surprises.

How should sellers prepare?

Walk the house with this list and fix or document each item.
Make sure every system runs on inspection day: heat, water heater, electrical panel access.
Keep receipts, permits and photos for recent improvements.
Clear access to the attic, crawlspace, furnace and electric panel.
Use our full Pre-Appraisal Checklist for Baltimore homes.

Common questions

What fails an FHA home appraisal?

Safety and habitability problems such as peeling paint on pre-1978 homes, missing stair handrails, a non-working heating system, active roof leaks, exposed wiring, a water heater without a relief valve and pipe, and a wet or unventilated crawlspace.

Does an FHA appraisal require repairs?

The appraiser reports what they observe and the lender decides what must be repaired before closing. Required repairs are usually verified, sometimes with a re-inspection.

Is air conditioning required for an FHA appraisal?

FHA does not require air conditioning, but a permanent heating system that works and is adequate for the area is expected.

What is the peeling paint rule for FHA loans?

On homes built before 1978, deteriorated paint is treated as a possible lead hazard and generally has to be repaired using lead-safe work practices.

Do conventional appraisals look at the same things?

The standards are less detailed, but appraisers still report safety and condition problems, and lenders may require repairs before closing.

Sources

This article is general information, not legal, tax or financial advice. Rules and lender procedures change and every transaction is different. Confirm current requirements with your lender, a Maryland attorney or a title company.