An FHA appraisal might also require that hand rails be put in a stairwells, something a conventional appraisal likely wouldn't require, says Mike Lyon, head of operations for Quicken Loans, the nation's No. 2 FHA lender.
Some sellers reject FHA offers because they don't want to "deal with repair requests from FHA lenders," says Redfin real estate agent Sonal Basu, who works in the San Francisco Bay Area.
Lyon also says FHA home-loan purchases have a higher probability of not closing than do conventional loan purchases, in part because of appraisal issues and also because FHA borrowers tend to have more limited finances.
FHA's appraisal standards don't have any "extraordinary requirements" beyond those for conventional loans, says Brian Sullivan, spokesman for the Department of Housing and Urban Development, which oversees FHA. Pre-sale health and safety repairs protect borrowers, especially since they may not have funds after the purchase to do repairs, he says.
Sometimes, FHA buyers don't even make it to the appraisal stage.
Dan and Sarit Biegel recently purchased a home in Irvine, Calif., using an FHA loan. They started shopping in February and found one house they loved. They made an offer and heard nothing. Thinking they'd improve their chances, they wrote a letter to the seller explaining how much they loved the house. Unbeknownst to them, the seller had received at least 10 other offers and had accepted one of them.
"Because we were FHA, they didn't even get to our offer," says Dan Biegel, 33, a software marketer.
The Biegels later won against four other bidders. Meeting the seller helped, Biegel says. She told the couple she didn't want her house to go to an investor, Biegel says.
Rising prices could boost supply
Home inventories have shrunk because fewer foreclosures are coming to market. Many homeowners don't want to sell, because they don't have enough equity in their homes. Others are waiting for higher prices.
"They've waited out five years of declining prices and don't want to sell at the bottom," says Stan Humphries, a Zillow economist. As home prices increase, more sellers will likely emerge, he says, which will add inventory. Or, buyers might back off if the economy softens.
Brent Harlow, 36, of Seattle, is betting that prices won't rise fast enough to justify getting into bidding wars now.
In May, the Seattle area had a 1.7-month supply of homes for sale, according to the Northwest Multiple Listing Service.
Harlow, a Boeing engineer, has been shopping for his first home since April. He explored making offers on four homes. Cash buyers had already bid them out of his range, he says. He might wait on a home purchase to see if the market cools. To successfully compete for a home "feels too rushed," he says.
Dorado is happy to be across the finish line.
Since he moved into his formerly bank-owned home in May, he's cleaned the pool, turning black water to blue. His hydrangeas, which were almost dead, are in full bloom. He's repainted chipped paint, outside and in. The home that sat vacant for a year is now one of the snappiest on the block.
"This looks like a completely different house," Dorado says.