Homebuyers intending to finance a home purchase with a Federal Housing Administration (FHA) loan sometimes get a nasty surprise: They won't be allowed to purchase a particular property because it doesn't meet FHA requirements. Why do these requirements exist, what are they, and can they be remedied so that buyers can get the homes they want?
FHA Establishes Minimum Property Standards
When a homebuyer takes out a mortgage, the property he's buying serves as collateral for the loan. In other words, if he or she stops making the mortgage payments, the mortage lender will eventually foreclose and take possession of the house. The lender will then sell the house to get back as much of the money left on the loan as possible.
Requiring that the property meet minimum standards protects the lender. It means that the property should be easier to sell and command a higher price if the lender has to seize it. At the same time, it protects the borrower a bit too: It means he or she will not be burdened with ruinous repair bills from the start, and – as a fundamentally sound place to live – provides more incentive to make payments during difficult financial times to keep it.
Minimum Property Standards
According to the U.S. Department of Housing and Urban Development (HUD), the FHA requires that the properties financed with its loan products meet the following minimum standards:
- Soundness: The property should not have physical deficiencies or conditions affecting its structural integrity.
- Security: The home should protect the security of the property (as explained in the previous section).
- Safety: The home should protect the health and safety of the occupants.
It then describes the conditions the property must meet to fulfill these requirements. An appraiser will observe the property's condition during the required property appraisal and report the results on the FHA's appraisal form. (Property appraisals are one of many requirements that buyers fulfill before settling on a deal)
For single-family detached homes, the appraiser is required to use a form called the Uniform Residential Appraisal Report. The form asks the appraiser to describe the basic features of the property, such as the number of stories, year it was built, square footage, number of rooms and location. It also requires the appraiser to "describe the condition of the property (including needed repairs, deterioration, renovations, remodeling, etc.)" and asks, "Are there any physical deficiencies or adverse conditions that affect the livability, soundness or structural integrity of the property?" The condominium unit appraisal form is similar but has condo-specific questions about the common areas, homeowners association, number of owner-occupied units and so on.
The FHA does not require the repair of cosmetic or minor defects, deferred maintenance and normal wear if they do not affect the safety, security or soundness of the home.
The FHA says that examples of such problems include but are not limited to the following:
- Minor plumbing leaks (such as leaky faucets)
- Defective floor finish or covering (worn through the finish, badly soiled carpeting)
- Evidence of previous (non-active) wood-destroying insect/organism damage where there is no evidence of unrepaired structural damage
- Rotten or worn-out counter tops
- Damaged plaster, sheetrock or other wall and ceiling materials in homes constructed post-1978
- Poor workmanship
- Defective paint surfaces in homes constructed post-1978
- Trip hazards (cracked or partially heaving sidewalks, poorly installed carpeting)
- Crawl space with debris and trash
- Missing handrails
- Cracked or damaged exit doors that are otherwise operable
- Cracked window glass
- Lack of an all-weather driveway surface
There are many areas where the FHA does require problems to be remedied in order for the sale to close. Here are some of the most common issues that homebuyers are likely to face.
Hazards and Nuisances
A number of conditions fall under this category. They include but are not limited to the following:
- Oil and gas wells located on the property
- Heavy traffic
- Proximity to something that could explode, such as a high-pressure petroleum line
- Contaminated soil
- Proximity to a hazardous waste site
- Proximity to high-voltage power lines
- Airport noise and hazards
- Other sources of excessive noise
- Proximity to a radio or TV transmission tower
The home must have a toilet, sink and shower. (This might sound silly, but you'd be surprised what people will take with them when they're foreclosed on.)
Any defective structural conditions and any other conditions that could lead to future structural damage must be remedied before the property can be sold. These include defective construction, excessive dampness, leakage, decay, termite damage and continuing settlement.
If an area of the home contains asbestos that appears to be damaged or deteriorating, the FHA requires further inspection by an asbestos professional.
The property must provide safe and adequate access for pedestrians and vehicles, and the street must have an all-weather surface so that emergency vehicles can access the property under any weather conditions.
Roofs and Attics
- The roofing must keep moisture out.
- The roofing must be expected to last for at least two more years.
- The appraiser must inspect the attic for evidence of possible roof problems.
- The roof cannot have more than three layers of roofing.
- If the inspection reveals the need for roof repairs and the roof already has three or more layers of roofing, the FHA requires a new roof.
The water heater must meet local building codes and must convey with the property.
Electrical and Heating
- The electrical box should not have any frayed or exposed wires.
- All habitable rooms must have a functioning heat source (except in a few select cities with mild winters)
The FHA’s Minimum Property Standards is available in the following areas/cities
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