October 26, 2017
What Are The Property Requirements For An FHA Loan? We’ve been examining that question in our last few blog posts. FHA loan rules specify that a home must meet minimum standards in order to be approved for an FHA mortgage. What are those standards? There are many, which is why a qualified FHA appraiser must review the property to make sure it is suitable for a mortgage.
FHA loan rules in HUD 4000.1 state that the home must be generally safe, habitable, and must have a remaining economic life for the entire duration of the mortgage. However, not all homes are in the same condition when they are sold as brand new houses and some homes are purchased under the FHA 203(k) or FHA 203(h) rehab loan programs.
Those properties are definitely NOT up to FHA minimum standards at loan application time, and that is taken into account. However, all properties to be purchased with an FHA mortgage must be brought into compliance with minimum standards as a condition of loan approval. The timing of those repairs, renovations, or corrections depends on the nature of your home loan.
In general, for homes purchased with a typical FHA mortgage loan, also known as an FHA 203(b) mortgage, any appraiser-required corrections or repairs must usually happen before the loan closes. In some cases the borrower may be able to negotiate a different completion date with the lender. But that is managed on a case-by-case basis and may not apply to all mortgages.
FHA Minimum Property Requirements
All homes to be purchased with an FHA mortgage loan must have a suitable foundation which meets federal/state/local code requirements where applicable. Properties must be accessible, which the FHA loan rulebook describes specifically as properties which are situated at/near “an all-weather road surface over which emergency and typical passenger vehicles can pass at all times.”
There must be adequate drainage, be safe from sinkholes, and be generally free of hazards and nuisances such as noxious fumes and high noise levels. The home itself must be deemed free of excessive moisture or leaks as readily observable by the appraiser.
Homes must have working appliances, and must be serviced by either local utilities or approved substitutes such as health authority-approved wells and septic systems. FHA loan rules generally defer to the local authority in areas of health standards. Borrowers will need to check with the local authority to see what is acceptable in their area for water and septic issues.
These are just general descriptions of the FHA loan standards. FHA loan appraisal rules don’t cover each and every possible situation and local laws/building code must be satisfied in addition to FHA mortgage loan requirements.
Ask your lender or real estate agent about specific features of a property you aren’t sure about-there may be a local history of similar properties being approved, denied, or having required corrections in similar ways to the issues you are concerned about.