May 30, 2019
FHA loan rules for new purchase home loans include regulations on how the cost of repairs can be added to the sale price of the home to be purchased with an FHA mortgage. Th rules for this are found in HUD 4155.1, Chapter 2 Section Five, which states:
“Repairs and improvements may be added to the sales price before calculating the mortgage amount when the
• repairs and improvements are required by the appraiser as essential for property eligibility, and paid by the borrower, and
• sales contract or addendum identifies the borrower as responsible for payment, and completion of the repairs.”
FHA loan rules in this section state that, “Only repairs and improvements required by the appraiser may be included.”
How does this all work? Chapter Five has a subsection titled, “Repair and Improvement That Can Be Added To The Sale Price”, which states:
“The repair and improvement amount that may be added to the sales price before calculating the maximum mortgage amount is the lowest of the
• amount that the value of the property exceeds the sales price
• appraiser’s estimate of repairs and improvements, or
• amount of the contractor’s bid, if available.”
However, the FHA anticipates one situation that borrowers should know is restricted–repairs and improvements cannot be included in the sale price when they have been completed PRIOR TO THE FHA APPRAISAL. That’s a very important item to take note of.
FHA loans also permit certain weatherization upgrades to be added to the sale price under the proper circumstances. Chapter Five states, “The mortgage amount may be increased if the cost of energy-related weatherization items paid by the borrower is added to the property. Examples of energy-related weatherization items include
• thermostats
• insulation
• storm windows and doors, and
• weather stripping and caulking.
These items may be added to both the sales price and the appraised value before determining the maximum mortgage amount. Note: A contractor’s statement of the cost of work completed, or the buyer’s estimate of the cost of materials must be submitted.”
Do you have questions about FHA home loans? Ask us in the comments section. You can apply or get pre-approved for an FHA loan at www.FHA.com, a private company and not a government website.
Joe Wallace has been specializing in military and personal finance topics since 1995. His work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and a member of the Air Force Public Affairs Alumni Association. He was Managing editor for www.valoans.com for (8) years and is currently the Associate Editor for FHANewsblog.com.
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