August 1, 2022
In 2019 we wrote an article discussing a common reader question about FHA home loans. Can the presence of peeling paint be enough to cause a problem in the FHA appraisal process?
In our original article, we noted that this can be a major issue for homes built before the lead paint ban which took effect in the 1970s.
In some situations, borrowers want to know why the appraiser reviewed the home and required a correction of a peeling paint issue as a condition of loan approval. The age of the home plays a big part in that decision to require a correction. If the house was built before 1978, that peeling paint is NOT just a cosmetic issue.
FHA home loan rules since our original article in 2019 still require full disclosure of any lead hazard. From HUD 4000.1:
“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.
FHA loan rules also say the borrower must be provided a 10-day window of opportunity to conduct a lead paint inspection/risk assessment. The borrower is free to waive this, but it must at least be offered.
FHA requirements for the appraiser since 2019 are also the same. Note the instructions to the appraiser in HUD 4000.1 under a section titled “Defective Paint”.
“If the dwelling or related improvements were built after 1978, the Appraiser must report all defective paint surfaces on the exterior and require repair of any defective paint that exposes the subsurface to the elements.” And for homes and/or improvements built before 1978?
The FHA appraiser must, “note the condition and location of all defective paint and require repair in compliance with 24 CFR § 200.810(c) and any applicable EPA requirements.”
Furthermore, “The Appraiser must observe all interior and exterior surfaces, including common areas, stairs, deck, porch, railings, windows and doors, for defective paint (cracking, scaling, chipping, peeling, or loose).”
As in 2019, we observe in the rulebook that in the context of the appraisal for an FHA mortgage, peeling paint is defined as “defective paint” and must be dealt with according to EPA requirements.
Some circumstances may warrant what HUD 4000.1 terms an “as-is appraisal”. Compare what the rules say about peeling paint for homes built AFTER 1978:
“The Appraiser may complete an as-is appraisal for existing Properties when minor property deficiencies, which generally result from deferred maintenance and normal wear and tear, do not affect the health and safety of the occupants or the security and soundness of the Property.”
HUD 4000.1 says in these cases, cosmetic repairs are not required, but the appraiser is required to report them as part of the overall condition of the home at appraisal time.
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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