FHA Condition Requirements

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)