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Feb 16, 2021 | By
What Repairs are Required for an FHA Loan?

What Repairs are Required for an FHA Loan?

When you apply for an FHA loan, you're getting a loan that is monitored by a Federal agency, the Housing and Urban Development (HUD). 

This loan has lenient guidelines and lower interest rates for those who qualify.

HUD has specific safety requirements for every property that's eligible to receive an FHA loan. These requirements are in place so that HUD can resell the property if, for some reason, the homeowner is unable to make payments and the home is repossessed.

It also protects the home buyer to ensure the house is livable and safe and most likely won't require immediate repairs. 

The FHA appraisal doesn't include cosmetic issues, paint issues after 1978, evidence of insects that doesn't have a structural impact, cracked glass, or minor plumbing issues, hvac issues. These can all be negotiated with a proper home inspection.

But these issues also won't prevent you from getting an FHA loan.

Any required repairs will be listed on the appraisal.

The appraisal

The first step before knowing if your potential home is on its way to being approved for an FHA loan is to have an appraisal. While a home inspector will determine other types of repairs that may be necessary, the appraiser will determine basic safety as outlined by HUD. 

FHA loans require that the home appraisal be completed by a HUD-approved property appraiser. The property appraiser will go through a checklist of items. If the home doesn't pass inspection, the home buyer and the home seller have several options, including walking away from the agreement. 

Note: The appraisal will be ordered by your lender or mortgage broker. You cannot order the appraisal yourself.

What's considered safe?

The HUD-approved property appraiser will look for health hazards that might impact a new homeowner. One item on their checklist is verifying whether or not there is lead-based paint on the structure. This toxic paint was used primarily in homes built before 1978 and can be dangerous, especially to children. It can impact the brain, kidneys, nerves, and blood. 

They will also look for any mold and mildew. While the FHA doesn't have guidelines regarding mold, they will use local, state, or federal guidelines to determine what sort of remediation might need to take place.

During the appraisal, they will also look for any insect damage, particularly termite damage. Wood-destroying insects can do fast and lengthy damage to a home, so the lender doesn't want to finance a home that might have structural issues as a result of insects. 

If any termite damage is found and mentioned on the appraisal, then a follow-up inspection by a pest-control specialist is required.

An FHA loan in San Diego would require a licensed termite professional to provide a report.

Insect damage must be repaired, and the home must be treated for any pests before closing.

Working utilities

The property appraiser will also ensure that the utilities are in good working order, such as heat, water, and electricity. 

The home must have a clean water supply year-round. The water quality must meet EPA standards if there isn't an expectation at the local level, and there must be adequate water pressure. 

All of the utilities need to be turned on during the appraisal so that the appraiser can verify that they all work as expected. 

They will also ensure that there is no exposed wiring in the home and that there aren't major plumbing issues or leaks on the property. 

Outside of the home, there should be proper water drainage. Water should drain away from the home instead of pool around the foundation. The home also must have proper sewage. 

The appraiser will verify that the home is located in a safe area as well and that there's access for emergency vehicles. It should be located far enough away from any excessive noise or environmental hazards, such as an airport or if power lines cross over a swimming pool. 

Other concerns

The FHA lender wants to make sure you won't have to make major repairs right away and you're able to continue to make mortgage payments. 

To help homebuyers achieve this, they require that the roof has at least three years of life left. Replacing a roof can be expensive; this standard will allow a homeowner more time to save for the repair in the future. 

All doors and windows in a prospective home must open and close. This is something that an appraiser will check but is usually an easy fix. 

The home must have year-round access to a public street. This further ensures that safety vehicles can reach the home if there is an emergency. 

What if a home needs repairs?

The home must pass this checklist of items in order to be approved for an FHA loan. If the HUD-approved property appraiser finds that the home has the issues mentioned above, there are several options for both home buyer and home seller. 

  • Seller funds the repairs. Quite often, the home seller will be the one to make repairs to the home, particularly if the items aren't as significant. 
  • Buyer funds the repairs: Sometimes, the buyer will ensure the repairs are made with the seller's permission. On occasion, the two might combine forces. The seller might start repairs but impose a dollar cap. At that point, the buyer would pick up any repairs that are left.
  • Walk away: If you can't come to an agreement, or if the repair cost would be too high, it might be best for the buyer to simply walk away. The FHA property standards are in place to protect the buyer from a home that isn't safe and secure, and that also means protecting home buyers when they need to walk away from a challenging property. Most purchase agreements will allow buyers to back out of an agreement without losing earnest money if no agreement for repairs can be reached.

Last steps

FHA states that loans must close within 120 days of the appraisal. That means the buyer and seller have about four months to ensure that all repairs are made.

After repairs are completed, the appraiser will have to go back out to the property to do a second inspection for confirmation of completion of repairs. There is a charge for the second inspection; it is typically in the range of $150 to $175.

Read more about FHA Loans:

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