September 21, 2017

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Why Is Peeling Paint A Problem For The FHA Appraisal?

Why is peeling paint an issue for the FHA appraisal?

Why is peeling paint an issue for the FHA appraisal? Isn’t this just a cosmetic issue? That’s a very common question in some housing markets-those buying homes with FHA mortgages should know why this can be an issue that requires correction as a condition of FHA home loan approval.

The Age Of The Property Is An Important Factor

FHA loan rules specify that properties that have peeling paint issues have specific actions required depending on the age of the home. According to HUD 4000.1, the FHA loan handbook, “If the Property was built before 1978, the seller must disclose any information known about lead-based paint and lead-based paint hazards before selling the house, in accordance with the HUD-EPA Lead Disclosure Rule (24 CFR 35, subpart A, and the identical 40 CFR 745, subpart F).”

Homes Built Prior To 1978 May Have Lead Paint Issues

Once the practice of using paint with lead additives was stopped, homes of a certain age (those built prior to 1978) are assumed to have lead paint in them, where newer homes do not. Peeling paint in such cases is viewed as a specific health hazard rather than a cosmetic issue. The peeling paint in homes built before 1978 must be abated in a manner acceptable to FHA appraisal requirements.

Homes Built Prior To 1978 Require Certain Disclosures

FHA loan rules in HUD 4000.1 state that in such cases, the lender is required to insure “the Borrower has been provided the EPA-approved information pamphlet on identifying and controlling lead-based paint hazards.” That pamphlet is titled Protect Your Family From Lead In Your Home.

The lender is also required to offer the borrower “…a 10-Day period before becoming obligated to purchase the home to conduct a lead-based paint inspection or risk assessment to determine the presence of lead-based paint or lead-based paint hazards,”. The lender may offer the borrower the change to waive this opportunity, but state law may have additional requirements depending on the location of the home.

Real Estate Agents Have Requirements, Too

It’s not just the lender required to exercise due diligence in these circumstances. According to HUD 4000.1, “when any agent is involved in the transaction on behalf of the seller, the sales contract includes a statement that the agent has informed the seller of the seller’s Lead Disclosure Rule obligations, the agent is aware of his/her duty to ensure compliance with the requirements of the Rule, and the agent has signed and dated the contract”.

Talk to a loan officer to determine what may apply in your specific situation. Some homes built before 1978 may have already been stripped of the original lead paint, or others may have lead paint that is not peeling or otherwise the source of attention during an appraisal.

State law may dictate certain actions not required by FHA loan rules, so you will need to know whether that is also a factor.

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