With easier credit requirements, lower down payments, and flexible guidelines, FHA loans are a popular entry point for many first-time buyers. But they come with one extra step that can impact your purchase: the FHA inspection, technically known as the FHA appraisal.
Most buyers will get a standard home inspection to understand a home’s condition and uncover any underlying problems. But an FHA appraisal inspection serves two distinct purposes, meant to protect both the lender and future occupant: It verifies the home’s value and confirms the property meets federal Housing and Development (HUD) Minimum Property Requirements (MPRs).
In other words, if you’re buying with an FHA loan, the home must be safe, structurally sound, and free of hazards that could affect an occupant’s health. Does that mean your dream home is off-limits? Not necessarily.
Whether you’re buying your first home in Atlanta, GA or looking at houses for sale in Riverside, CA, make sure you know won’t pass an FHA inspection — before it comes time for the appraisal.
>>See more: FHA Inspection Requirements
In this article:
How FHA inspections work
Why would a house not pass FHA inspection?
FHA appraisal red flags
What happens if a home doesn’t pass
Is it hard to pass an FHA appraisal?
FAQs
How FHA inspections work
Before jumping into FHA appraisal red flags, it’s helpful to understand how the process itself works. The FHA inspection goes hand-in-hand with the FHA appraisal, taking place when an FHA-approved appraiser visits the property. During this visit, the appraiser is verifying two things:
1. The home’s fair market value
They assess comparable sales, the home and property condition, and features to make sure the lender isn’t financing more than what the home is worth.
2. The home meets HUD’s Minimum Property Requirements
This is the “inspection” part. The appraiser checks for:
- Safety hazards like exposed wiring, missing railings, broken windows.
- Structural soundness such as major foundation issues or wood rot.
- Livability: working heat, running water, available appliances, and functional plumbing and electric.
The property needs to be considered livable, safe, and free of any potential hazards in or around the home to meet the Minimum Property Requirements.
Your FHA lender uses the appraiser’s findings to determine whether the home qualifies. If the appraiser flags any issues, you’ll receive a list of required repairs. These must be completed before the loan can close; otherwise, you may need to walk away from the home or switch to different financing.
Why would a house not pass an FHA inspection?
When an FHA appraisal flags a property, it’s usually not because of cosmetic quirks or avocado-green countertops. A house fails an FHA inspection when something about it is considered a safety, security, or structural risk.
This could include:
1. Defective or non-functional appliances and systems
- Major appliances included in the sale must work: If built-in or included appliances like oven/range, water heater, or refrigerator are present and contribute value, they need to be operational. If not, the appraiser may mark them as “deferred maintenance,” which can become a required repair.
- HVAC, water heater, and utility systems must be functional and safe: A broken furnace, non-working water heater, or non-functional plumbing/electrical systems are common fail points.
2. Attic, crawl space, and insulation / ventilation issues
- Attic or crawl spaces must be accessible and safe: If the attic or crawl space is blocked, filled with junk, has exposed wiring, or if there’s insufficient ventilation or insulation, the appraiser will flag it.
- Signs of water damage, leaks, or prior fire damage in attic or roof sheathing: Damage or rot here can indicate structural or long-term water intrusion risk, which FHA will not accept without repairs.
3. Poor drainage or lot/yard issues that compromise the structure
- Negative grading or poor drainage toward the foundation: Water pooling, downspouts dumping near the foundation, or bare soil sloping toward the house can cause long-term foundation or moisture issues.
- Detached structures, outbuildings, or garages in disrepair: Even non-living structures must be safe and structurally safe. Deteriorated sheds, barns, or garages will probably be flagged.
4. Lot access and property access issues
- Year-round vehicular and pedestrian access is a must: If access is blocked, seasonal (like a driveway prone to flooding or being blocked by snow), or not maintained, that can fail an FHA inspection.
- Unsafe or inadequate entry/exit pathways: Sketchy stairs, missing handrails, uneven walkways, or broken steps are common hazards flagged by appraisers.
5. Basement, foundation, and structural integrity issues (beyond major cracks)
- Settlement, shifting, or uneven floors: Not just obvious foundation cracks, but sagging floors, sloping surfaces, or soft spots underfoot can mean structural issues FHA won’t accept and need further review.
- Moisture intrusion or dampness in basements or crawl spaces: Even if there’s no visible major crack, history or signs of moisture, dampness, or poor drainage in these spaces can be noted on the report.
6. Environmental, health, and hazard issues
- Lead-based paint hazards (in pre-1978 homes): Peeling or chipping paint must be addressed to avoid lead risk before an FHA loan can close.
- Mold, mildew, or persistent dampness: Visible mold, water stains, or signs of ongoing moisture problems can disqualify a property.
- Pest or termite damage: Evidence of active infestation or damage caused by pests is often a deal-breaker unless remediated.
- Old, unsafe materials: Asbestos, hazardous storage tanks, or abandoned wells can derail FHA approval.
7. Code compliance, safety devices, and egress/safety standards
- Missing or broken windows/doors, unsecured exterior doors: Windows or doors that don’t open, don’t lock properly, have broken glass, or are blocked can violate safety or egress standards.
- Missing handrails, guardrails, stair hazards: Especially for stairs with three or more steps or elevated porches, missing railings is a frequent FHA fail item.
- Non-functional smoke detectors / carbon monoxide detectors: Also poor ventilation in bathrooms or kitchens. Essentially, basic life-safety devices and ventilation standards need to be met.
8. Incomplete or missing utilities and major systems
- Water, electricity, heating, and sewer/septic must all work properly: A home without running water, functioning septic or sewer, or no safe/sealed well (if needed) is almost always disqualified.
- Old, unpermitted renovations or additions / unsafe conversions: A converted attic, basement, or garage that doesn’t have the proper permits, egress, or safe wiring/plumbing/structural compliance can fail FHA standards.
FHA appraisal red flags buyers might not expect
A lot of what fails an FHA inspection is generally pretty logical: older, unmaintained roofs, broken windows, exposed or faulty electrical, potential lead paint hazards, unsafe steps, barely working heat. But there are other, less obvious red flags that might come up during the appraisal that might also cause the home to fail the inspection.
Vacant homes
- Utilities turned off can be an instant fail, since the appraiser can’t test the systems.
- Moisture or early-stage mold from lack of ventilation.
- Frozen or burst plumbing in cold climates.
- Pests or rodents moving in during vacancy.
- Water heaters left drained or powered off, which can leave them temporarily nonfunctional.
Seller-caused setbacks
- Pets blocking access to certain rooms or areas.
- Rooms piled with storage, preventing inspection.
- Locked doors with no key available.
- No access to attic or crawlspace.
- Unsafe walkways or trip hazards on inspection day.
Appraisers need to see every accessible and functional space. If they can’t, FHA can’t confirm the space is fit and safe for living.
Older homes
Newer homes (within the last 40-50 years) tend to perform best with FHA inspections, since older homes can come with the kind of aging materials FHA’s MPRs frown on:
- Knob-and-tube wiring or cloth-covered wiring.
- Asbestos is in bad condition, especially around ductwork or old flooring.
- Lead-based paint hazards (anything chipping or flaking in pre-1978 homes).
- Antiquated electrical panels known for safety issues, like Federal Pacific or Zinsco.
- Uneven settling or sloping floors that might mean bigger structural problems.
Rural properties
Not all FHA surprises come from the house itself. In rural areas, the site can also be the cause of issues:
- Private wells too close to septic systems.
- Well water that fails quality or pressure tests.
- Soft, seasonal, or unmaintained access roads.
- No year-round access for emergency services.
- Outbuildings in dangerous disrepair, like collapsing barns or unsafe sheds.
Unpermitted or unconventional spaces
That attic studio or garage-turned-bedroom might look great on a listing, but FHA appraisers have to look at whether it’s:
- Properly permitted.
- Safely built.
- Wired and plumbed correctly.
- Meeting egress requirements.
If it doesn’t check all those boxes, FHA may exclude the room from square footage, or require the additions to be up-to-code before closing.
Layout and livability
HUD expects a home to function like a home. That means buyers are sometimes surprised when the appraisal flags:
- Bedrooms without legal egress (like tiny windows, sealed windows, or no escape route).
- No permanent heat source in a living area.
- Kitchens or bathrooms missing essential fixtures.
- A listed “bedroom” that’s really just an unheated alcove.
Water management and drainage
Even without active water damage, poor drainage means future risk — and FHA is all about preventing future expense.
- Negative grading that directs water toward the foundation.
- Downspouts emptying directly at the base of the home.
- Improperly installed gutters.
- Erosion or failing retaining walls.
Outbuildings and detached structures
If a structure is unsafe, FHA wants it repaired or removed, even if you never plan to use it.
- Leaning sheds.
- Rotting garage roofs.
- Old barns that aren’t structurally sound.
- Detached additions wired unsafely.
What happens if a home doesn’t pass an FHA inspection?
Just because an FHA appraisal finds things that need to be fixed, it doesn’t automatically mean the sale won’t go through. Usually, it just means there are a few extra steps:
1. The appraiser issues a “subject to” appraisal
The appraiser marks the valuation as subject to required repairs, or conditional approval. This means the home can qualify for FHA financing, but only after the noted issues are fixed.
2. The seller is usually asked to make the repairs
Because FHA loans require the property to meet HUD’s guidelines before closing, sellers are usually responsible for repairs. Depending on the market and negotiation power, the seller will either agree to complete the work, or say no to the repairs (more on what happens if the seller says no later).
3. A re-inspection is scheduled
Once the required repairs are finished, the original FHA appraiser returns to verify that everything was completed properly. This re-inspection confirms the property now meets FHA standards. It’s usually quick, but it can delay closing if the appraiser is booked or repairs take longer than expected.
4. If repairs aren’t made, the loan can’t close
Lenders can’t approve an FHA loan on a non-compliant property. If the seller says no to repairs, or if the fixes are done incorrectly, the lender will decline financing. At this point, the buyer may have to cancel the contract unless another loan program or creative workaround is found.
5. Buyers might choose alternate financing
If the home needs more work than a standard FHA loan allows, or the seller won’t make larger repairs, an FHA 203(k) rehab loan can be another option. This program lets buyers roll the purchase price and renovation costs into one mortgage.
In other cases, qualified buyers might pivot to conventional financing to avoid FHA repair requirements altogether. Conventional loans are often more lenient when it comes to property conditions, so minor issues that FHA flags may not be a problem.
Is it hard to pass an FHA appraisal?
While FHA appraisals have a reputation for being strict, if the home is in relatively good condition and well-maintained, it’s more likely to be approved. If major systems work as they should and there aren’t any big safety concerns, recommended fixes are often inexpensive and easy to complete before closing.
Older homes, vacant properties, or homes that need TLC are more likely to come with flagged problems, and depending on a seller’s willingness to fix issues, might not qualify for FHA financing. If that’s the case, rehab loans, conventional financing, or finding a different home altogether might be the next step for a buyer.
In the end, passing an FHA appraisal inspection isn’t “hard” as much as it is condition-dependent. Working with a real estate agent familiar with FHA financing can help increase your chances of choosing a home that will pass the inspection—and that your offer protects you if it doesn’t.
FAQs: What won’t pass an FHA inspection?
Can I buy a fixer-upper with an FHA loan?
Buyers can purchase a fixer-upper using an FHA 203(k) rehab loan, which finances both the home purchase and the cost of necessary repairs or renovations. A standard FHA loan can be used on a home that needs minor fixes, but all HUD-required repairs must be completed before closing. For homes needing larger repairs, the 203(k) program is usually the FHA-friendly path.
Can I waive repairs and still close with FHA financing?
Not usually, since issues noted during the FHA appraisal—anything related to safety, structural soundness, or basic livability—must be completed before the lender can approve the loan. Buyers cannot ignore certain fixes or repairs the way they might in a conventional or cash deal. The only workaround is switching to a different loan type or using an FHA 203(k) loan if the needed repairs qualify.
How long do I have to complete required FHA repairs?
Repairs need to be completed before closing, because the FHA appraiser needs to verify the property meets HUD standards prior to approving the loan. If certain repairs are extensive or weather-dependent, lenders might allow a holdback or escrow account, but this is the exception, not the norm. Most standard FHA transactions expect all required work to be finished and reinspected before the buyer can close.
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