Can I Get an FHA Loan Without an Appraisal?

“Is it possible to get an FHA loan without a home appraisal?” This question was sent in by one of our readers.

If you’re buying a home using an FHA loan, the property will have to be appraised. You cannot buy a home with an FHA loan without an appraisal. The appraiser must review the property to determine its market value and to ensure that it meets the minimum property requirements for the program.

If you’re refinancing your home, and you currently have an FHA loan, it might be possible to refinance without an appraisal. This can be done through the “streamline refinance” program, as explained below.

Can I Get an FHA Loan Without an Appraisal?

An FHA home loan is insured by the Federal Housing Administration. This federal agency falls under the Department of Housing and Urban Development, or HUD. While FHA loans are insured by the government, they are originated by mortgage lenders operating within the private sector.

Lenders that participate in this program have to ensure that the loan meets all requirements set forth by HUD. And one of those requirements has to do with the appraisal.

Any time a person uses an FHA loan to buy a house, the property must be appraised by a HUD-approved appraiser. As a result of this requirement, home buyers cannot get an FHA loan without an appraisal.

The appraiser must determine the current market value of the house, while also making sure that it meets the minimum health and safety guidelines.

In most cases, home appraisals are also required for conventional or “regular” mortgage loans. So it’s not just an “FHA thing.” Mortgage lenders have houses appraised in order to determine the current market value. This is obviously something the lender wants to know, since they carry some of the risk associated with the home purchase.

The bottom line: Any time a mortgage loan is being used to buy a house, there’s a good chance the lender will require an appraisal. This is true for FHA, VA and conventional mortgage programs.

Using the ‘Streamline Refinance’ Program

There is one scenario where you could get an FHA loan without a home appraisal. It’s known as the “streamline refinance” program.

This program is available to homeowners who already have an FHA loan in place on their current homes. In such cases, an eligible homeowner could refinance into another FHA-insured mortgage without the need for a home appraisal.

There are other benefits to this refi program as well, including less paperwork and fewer underwriting requirements. But again, this is a refinancing scenario — not a purchase.

Purchase loans, on the other hand, almost always require that the home be appraised prior to funding.

Why Does the Property Have To Be Appraised?

To recap, home buyers cannot get an FHA loan without an appraisal. If you want to purchase a house using the Federal Housing Administration’s home loan program, the property will have to be appraised to determine the market value.

But why? Why does HUD require an appraisal? The answer has to do with risk.

From the perspective of HUD and FHA, the home appraisal is basically a risk-mitigation tool. Remember, the Federal Housing Administration insures home loans originated by mortgage lenders. If the borrower later defaults (or fails to repay) the loan, the lender can receive reimbursement for their losses.

Because of that risk, FHA and HUD need to make sure that the houses they are backing have resale value and meet certain property requirements. That is the purpose of the home appraisal, and that’s why you can’t get an FHA loan without one. (At least not when purchasing a house.)

The Home Inspection Is Optional

We’ve established that home buyers cannot receive FHA loan funding without a proper home appraisal. But what about a separate property inspection?

While the FHA appraisal does require a basic review of the property’s condition, it’s not the same as an “official” home inspection. HUD does not require FHA borrowers to have a full home inspection, though they do encourage it. They only require that the house be appraised, as mentioned above.

Quick Summary of Key Points

We’ve covered a lot of information in this article. Here are the most important takeaways:

  • Home appraisals are required for FHA purchase loans (when the borrower is buying a house).
  • The appraiser will determine the market value and make sure the property meets requirements.
  • It’s possible to refinance an existing FHA loan without an appraisal, with a “streamline refinance.”
  • HUD does not require a full home inspection, though it’s generally a good idea to have one.

Disclaimer: Every mortgage lending scenario is different, because every borrower is different. As a result, portions of this article might not apply to your particular situation. Your mortgage lender can tell you if a home appraisal is required, based on your financing method.