Here's the situation. If you are using an FHA loan to purchase a home, the house will have to meet some certain requirements for FHA to insure the mortgage. They want to make sure that the risk of loss is minimized so the appraiser is to look for certain aspects of the house to meet what they call "minimum health and safety standards."
What constitutes "minimum health and safety standards?" That's a good questions. There are many items the appraisers look for and I'll list some of them here: peeling paint if built prior to 1978, broken windows, holes in walls or floors or ceilings, unfinished sheetrock, missing trim, missing electrical fixtures, loose or inappropriate electrical, missing or broken plumbing, non-functional furnace or water heater, non-working toilets or bathrooms, broken steps, broken concrete, missing floor coverings (subfloor showing), cracked tiles, mold, and the list goes on and on. They basically are looking for health and safety issues. These items, among others, can be considered to be hazardous to health or safety.
So if you are using an FHA loan, when you are looking at houses, be sure to look for these items. They can kill a deal. Belive me, I've seen it a number of times. Sometimes it comes down to a missing $0.19 electrical cover plate. Other times it's repaint the exterior with an approved painting contractor versed in lead based paint remediation for $6,000.
If you are purchasing a HUD home, these homes will have a Property Condition Report (PCR) and/or a Property Repair Disclosure (PRD). If the house meets the minimum health and safety standards, these homes will be called "Insurable" or fully FHA qualified. This loan product is also called the FHA 203(B)
If the home has some repairs needed, they may call the home "Insurable with Escrow" (IE), which means you'll have to put some funds in a trust account to repair certain items.
Or the home may be "Uninsurable" which means you'll have to use a different loan product to purchase the home.
Some homes may be listed as a "FHA 203(K)" which is an FHA rehab loan. This product can give you money above the purchase price, to fix up the home.