May 11, 2017
Are properties with dug wells a problem when it comes to FHA loan approval? That’s what one reader asked us this week in the comments section:
“Would like to know if a dug well is OK for an FHA loan.” Short, simple, and to the point. The answer is, unfortunately, not so straightforward. The reader was asking a question in response to a blog post we made back in 2010 which referenced then-applicable FHA loan rules for wells-including dug wells.
However, the references in that old blog post have since been replaced with updated guidance and instructions to the FHA appraiser. HUD 4000.1 (the FHA loan rule book) is the most current reference, and contains this section that references dug wells:
“The Appraiser must report when water to a Property is supplied by dug wells, cisterns or holding tanks used in conjunction with water purchased and hauled to the site. The Appraiser must report whether such systems are readily accepted by local market participants and that the water supply system may violate MPR or MPS.”
Furthermore, HUD 4000.1 states that the appraiser is responsible for reporting a deficiency in cases where “the subject Property has a water source that includes a mechanical chlorinator or is served by springs, lakes, rivers, sand-point or artesian wells. A pressure tank with a minimum capacity of 42 gallons must be provided.”
“However, pre-pressured tanks and other pressurizing devices are acceptable if delivery between pump cycles equal or exceed that of a 42-gallon tank. Tanks must be equipped with a clean-out plug at the lowest point and a suitable pressure relief valve.”
FHA loan rules for appraisals often defer to local authorities or state/local standards in cases like these. The existence of dug wells may be acceptable in some housing markets but not in others. The quality of the water that comes from such non-public utility sources may or may not be acceptable to the local health authority.
And that is basically where the answer lies-is the well and its’ water acceptable under local health standards and other laws? In this case, the reader will be required to see what is permitted or required in the local area if trying to get an idea of whether the property would pass the appraisal or not.
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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