When applying for an FHA loan, both the borrower and the property must meet specific criteria. The FHA Conditional Commitment is the FHA’s official approval indicating that a property qualifies for FHA mortgage insurance once necessary conditions are met. This document focuses on the home’s value and condition, rather than the borrower’s financial profile.
How Does an FHA Conditional Commitment Work?
The first step is an FHA-specific appraisal conducted by an FHA-approved appraiser. Unlike conventional appraisals that mainly assess market value, FHA appraisals also evaluate whether the property complies with the FHA’s Minimum Property Requirements (MPRs), which are safety and livability standards essential for loan approval.
The appraiser inspects for issues such as peeling lead-based paint, roofing damage, missing handrails, or inadequate heating systems, documenting their findings on HUD Form 92800.5B, Conditional Commitment/Direct Endorsement Statement of Appraised Value. This form becomes the FHA Conditional Commitment.
If the appraisal identifies deficiencies affecting health or safety, the FHA will issue a Conditional Commitment listing required repairs. The commitment states the maximum loan amount FHA will insure, contingent on completing these repairs prior to closing.
The Conditional Commitment is typically valid for 120 days on existing homes and 180 days for new construction, allowing time to complete corrections necessary for loan finalization.
Key Elements of an FHA Conditional Commitment
- Appraised Value: Sets the maximum FHA-insured loan amount for the property.
- Required Repairs: Mandatory fixes that must be completed to meet FHA standards.
- FHA Case Number: Unique identifier tracking the transaction.
- Expiration Date: Validity period of the commitment before a reappraisal is required.
Conditional Commitment vs. Firm Commitment
While the Conditional Commitment focuses solely on the property’s condition and value, the Firm Commitment involves final loan approval based on a comprehensive review of both the borrower’s financial qualifications and the Conditional Commitment. The Firm Commitment is issued later in the FHA loan process and is necessary before closing.
Common Misconceptions
- Not a Home Inspection: The FHA appraisal looks only for FHA-specific minimum standards and safety issues, not a detailed home inspection. Buyers should hire independent inspectors for full assessments.
- No Guarantee of Value or Condition: The FHA Conditional Commitment confirms only that the property meets minimal standards suitable for FHA insurance; it does not warranty the home’s overall condition.
Frequently Asked Questions
What if the appraisal comes in below my offer? You may renegotiate the price, pay the difference out of pocket, or walk away if your contract has an appraisal contingency.
Who pays for required repairs? Typically, the responsibility is negotiated between buyer and seller, but repairs must be verified before loan closing.
Can I obtain a copy of the Conditional Commitment? Yes. Your lender must provide you with this document and the related appraisal report.
For more detailed FHA loan information, see our FHA Loan glossary entry and learn about FHA Appraisal Guidelines. You can also review the official HUD Form 92800.5B document on the HUD website.
This understanding ensures you and your property meet FHA criteria, smoothing your path to homeownership with FHA-insured financing.