Many home sellers and buyers, who want to finance a purchase transaction with an FHA-insured mortgage, are frustrated by a lower than expected appraisal by an FHA-approved appraiser.

FHA loans — those insured by the Federal Housing Administration — are the driving force for much of today's growing volume of home sales. The low down payment requirements and low interest rates are very attractive to many buyers. FHA loans now constitute about 24 percent of all home purchase mortgages, and industry leaders are predicting close to a 30 percent share by the end of the year.

The appraising process can support or quickly kill a pending transaction. Since it affects an increasing number of consumers, let's briefly review the role of the appraisal in a home sale transaction.

The appraiser is hired by the lender — the process is for the benefit of the lender, even though the home buyer usually pays for it. Its primary objective is to minimize risks for the lender, thus making mortgage financing available for the buyer.

The home buyer and seller may have ideas about what the property is worth, but the unbiased (hopefully) estimate of value by an independent appraiser, who has carefully inspected the house, will be used by the lender in deciding whether or not to approve the mortgage application.

Using an example cited on the FHA website to illustrate lender risks, Joe (a first-time buyer) might have used an FHA mortgage of $110,000 against his purchased home that appraised for $115,000. If Joe does not pay his mortgage payments, the lender will have to sell the property at foreclosure — a costly and time-consuming process.

Even if the home sells for $110,000, the mortgage company will suffer a loss on the transaction as they will most likely not recover their foreclosure fees and lost interest income. If the true value of the property was less than the appraised $115,000, the lender will take an even greater loss.

However, having a solid, objective opinion about the value of the home will help the lender in assessing the potential risks associated with the loan and prevent a loss due to foreclosure. The Department of Housing and Urban Development (HUD) requires appraisals of all FHA insured loans, except for so-called Streamline FHA mortgages.

A Streamline mortgage is an FHA loan used to refinance another FHA loan. It must also meet certain qualification requirements, but such loans require minimal documentation. HUD plans to tighten the qualification requirements for Streamline FHA mortgages, effective Jan. 1.

It should be noted that an appraisal is not the same as a home inspection. It does not guarantee that the home is without flaws. It simply establishes what the appraiser believes is a current and realistic market value of the property, for use by the lender.

Q: Are many home buyers really motivated by the tax credit?

A: In a survey recently conducted by the California Real Estate Association, it showed that about 40 percent of first-time buyers would not have purchased their home if the federal tax credit for first-time buyers was not offered. A recent IRS report noted that about 1.4 million taxpayers have filed their 2008 income tax returns claiming the first-time buyer tax credit.

With the tax credit offering approaching its expiration date of Nov. 30, many first-time buyers are scrambling to benefit from the credit. To qualify, their transaction must close before the expiration date.

At the same time, the number of new housing starts is decreasing as the expiration date nears. The decline started in August with a 3 percent reduction in the number of single-family home starts.

"With the first-time home buyer tax credit set to expire soon, the window is now basically closed for being able to start a new home that can be completed in time for purchasers to take advantage of that," said Joe Robson, chairman of the National Association of Home Builders.

Q: Is this a good time for seniors to purchase a retirement home?

A: In most respects, the answer is yes. Prices are low but beginning to rise in many markets. Mortgage rates are very low. Most indicators point to a "go" position for seniors.

However, some seniors who have purchased a retirement home now find themselves in a bind because it's taking far longer to sell their old home than they expected. In the meantime, they are making mortgage payments for both homes, straining their financial resources.

In some cases, it would be better to find one or two retirement homes you might like to purchase, but hold off making an offer until you sell the old home. Or you might make an offer with a stipulated long escrow or closing period, giving you more time and flexibility in the selling process. Some sellers might accept an offer that is contingent on first selling the old home.

To find out more about Jim Woodard and read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate website at www.creators.com.