November 14, 2018

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Am I Required To Use Water Utilities For The Home I Buy With An FHA Mortgage?

Am I Required To Use Water Utilities For The Home I Buy With An FHA Mortgage?
Not all properties are created exactly alike. Some are hooked up to the local utility company for drinking water and septic, while others may rely on wells or other sources. FHA borrowers considering the purchase of a property served by a well often worry that the home won’t meet FHA minimum standards.

What do FHA loan rules say about home loan approval for a property served by a well and/or a water purification system?

For a start, FHA loan rules do not automatically deny FHA loan approval for properties that have a well or a water purification system rather than being served by a local utility company.

That said, HUD 4000.1, the FHA loan handbook, does require that properties purchased with an FHA loan use local water utility systems “wherever feasible”. Yes, that phrasing is ambiguous and does leave plenty of room for the lender to determine what is feasible and what is not.

HUD 4000.1 also states that a home that does use a well or a water purification system will be required to meet health code requirements applicable in the local housing market. Those requirements are set by the local authority and NOT the FHA or HUD.

That means that if you are considering an FHA mortgage for a home served by a well or water purification system, these systems will have to meet FHA minimum requirements (including a specific flow of water over a specified time) AND the local requirements which FHA loan rules do not address.

FHA loan rules address this directly-consider what HUD 4000.1 says of water purification system requirements:

“Water purification equipment must be approved by a nationally recognized testing laboratory acceptable to the local or state health authority. The Mortgagee must obtain a certification from a local or state health authority…”

So it is clear that FHA loan rules aren’t the only ones that will determine whether your lender will approve an FHA mortgage loan for the property served by one of these alternatives to a local utility.

Borrowers should be prepared for a requirement for additional documentation for properties that use wells/purification systems. But HUD 4000.1 also addresses an equally important issue-that the borrower makes an informed purchase in cases where a purification system is required:

“The Mortgagee must provide written notification to the Borrower that the Property has a hazardous water supply that requires treatment in order to remain safe and acceptable for human consumption. The notification to the Borrower must identify specific contaminants in the water supply serving the Property, and the related health hazard arising from the presence of those contaminants.”

The borrower may know that the property is served by a well or purification system, but if there are hazards present the lender needs to make the borrower aware of, FHA loan rules actually require the lender to do so.

Bruce Reichstein - Staff Writer

By Bruce Reichstein

June 25, 2018

Bruce Reichstein has spent over three decades as an experienced FHA and VA home loan mortgage banker and underwriter where he was responsible for funding “Billions” in government backed mortgage loans. He is the Managing Editor for FHANewsblog.com where he educates homeowners on the specific guidelines for obtaining FHA guaranteed home loans.

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