In an effort to shed some
light on FHA’s repair and inspection requirements for existing properties, I
put together this handy guide for Realtors®, sellers, and buyers.
In
the past, FHA had
a reputation for having a very low tolerance for any condition that was not
perfect. This greatly hurt their reputation and the amount of loans that they
were insuring. FHA has shifted from its historical emphasis on the repair of
minor property deficiencies and now only requires repairs for those property
conditions that rise above the level of cosmetic defects, minor defects or
normal wear and tear. Appraisers, (the eyes of the lender’s underwriter), are
reminded to report all visual deficiencies and it is the underwriter that will
ultimately decide if repairs should be made or if further inspection is
required.
Repair Requirements
FHA will allow minor
property deficiencies, which generally result from deferred maintenance and
normal wear and tear, do not affect the safety of the occupants or the security
and soundness of the property. FHA no longer requires repairs for these types
of minor cosmetic deficiencies to bring a property into compliance.
Examples
of minor property conditions that no longer require automatic repair for
existing properties include, but are not limited to:
• Missing handrails
• Cracked or damaged
exit doors that are otherwise operable
• Cracked window
glass
• Defective paint
surfaces in homes constructed post 1978
• Minor plumbing
leaks (such as leaky faucets)
• Defective floor finish or
covering (worn through the finish, badly soiled carpeting)
• Evidence of previous
(non-active) Wood Destroying Insect/Organism damage where there is no evidence
of un-repaired structural damage
• Rotten or worn out
counter tops
• Damaged plaster,
sheetrock or other wall and ceiling materials in homes constructed post 1978
• Poor workmanship
• Trip hazards (cracked or
partially heaving sidewalks, poorly installed carpeting)
• Crawl space with debris
and trash
• Lack of an all weather
driveway surface
Examples of property conditions that may represent a risk to the
health and safety of the occupants or the soundness of the property for which
FHA will continue to require automatic repair for existing properties include,
but are not limited to:
• Inadequate access/egress
from bedrooms to exterior of home
• Leaking or worn out roofs
(if 3 or more layers of shingles on leaking or worn out roof, all existing
shingles must be removed before re-roofing)
• Evidence of structural
problems (such as foundation damage caused by excessive settlement)
• Defective paint surfaces
in homes constructed pre-1978
• Defective exterior paint
surfaces in home constructed post-1978 where the finish is otherwise
unprotected.
Lenders must review the appraisal to determine whether the
appraiser has reported any property conditions that will affect the health and
safety of the occupants or the security and the soundness of the property and
must require immediate repair where the property condition poses a threat to
these criteria.
Inspection
Requirements
FHA
no longer mandates automatic inspections for the following items and/or
conditions in existing properties:
• Wood Destroying
Insects/Organisms (a termite report): inspection required only if evidence of
active infestation, mandated by the state or local jurisdiction, if customary
to area, or at lender’s discretion
• Well (individual
water system): test or inspection required if mandated by state or local
jurisdiction; if there is knowledge that well water may be contaminated; when
the water supply relies upon a water purification system due to presence of
contaminants; or when there is evidence of:
– Corrosion of pipes
(plumbing)
– Areas of intensive
agriculture within ¼ mile
– Coal mining or gas
drilling operations within ¼ mile
– Dump, junkyard,
landfill, factory, gas station, or dry cleaning operation within ¼ mile
– Unusually
objectionable taste, smell or appearance of well water (superseding the
guidance in Mortgagee Letter 95-34 that requires well water testing in the
absence of local or state regulations)
• Septic: test or
inspection required only if evidence of system failure, if mandated by state or
local jurisdiction, if customary to the area, or at lender’s discretion
• Flat and/or
unobservable roof
Examples
of conditions that will continue to require automatic inspections include, but
are not limited to:
• Standing water
against the foundation and/or excessively damp basements
• Hazardous materials
on the site or within the improvements
• Faulty or defective
mechanical systems (electrical, plumbing, or heating)
– Evidence of
possible structural failure (e.g., settlement or bulging foundation wall)
