Things to Know When Buying FHA

 

Given the increase in popularity in FHA loans over the last five years, it is becoming even more important for both potential buyers and realtors to understand FHA’s minimum property standards.  While the standards do not vary greatly from Conventional or even VA guidelines, there are differences that do warrant attention.

In order to obtain an FHA loan, FHA requires that an inspection be done on the home (this is done during the appraisal).  What the FHA appraiser is looking for specifically is that property be free of hazard and any obvious deficiency.  If the appraiser does find a deficiency he/she will note it on the appraisal and it will have to be corrected BEFORE the closing.  The following issues would require repair:

  • Leaking or worn out roofs
  • Defective paint surfaces in homes constructed before 1978
  • Defective exterior paint surfaces in homes post 1978 where the finish is otherwise unprotected
  • 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 (settlement or bulging foundation wall)

Most often than not if there is an issue that had not been discovered by the time the FHA appraisal is ordered, it is of minimal concern, i.e. scraping and painting an old chipped painted surface or an electrical box and/or wires that are exposed that need to be covered.  The majority of homeowners hire a home inspector within their given five days of signing the contract.  Any major issues, if any exist, are regularly found by the home inspector.

 

Another area of confusion is FHA’s view on appliances.

All that FHA requires is that the property has a cooking area. There is no specific requirement as to how food is to be cooked or stored and they do not have any special requirement for the type or presence of appliances.  That being said, if the property DOES have appliances, they must be in working order. So if the home you would like to purchase has appliances that don’t work and the seller is not willing to fix them, it would be best to remove the broken appliances before your appraisal. 

***Its been our experience that not all appraisers physically check the appliances, they generally give a visual inspection, in that if the appliances look to be working they will assume they are.

 

FHA’s Mechanicals requirements

As we have already mentioned, FHA’s main concern is safety.  Any exposed electrical or otherwise safety hazard must be addressed.  FHA defines Heating and Air Conditioning as separate from “appliances,” they only require the heating unit works and is able to heat the home. They do not require that the Air Conditioning unit work, although if it used as a justification for value, then the lender may require the AC to be in working order.  FHA also requires that “all utilities” be on.  This is again so that the appraiser can ensure the working order of the mechanicals.  Water, gas, and electricity must be on and functional in the home. 

***It is not uncommon to find a foreclosed home in which the seller (a bank or institution) has turned off the gas and or electricity.  It would be wise to ask the seller upfront if they are willing to turn the utilities back on for the purpose of obtaining an FHA loan.

 

Other Safety Issues FHA will check for.

The FHA appraiser will also check the garage and if there is an automatic door, it MUST have motion sensors that will reverse the door in the event something or someone triggers it.

Not as common, but there have been appraisers that will ask for large tripping hazards found in sidewalks to be remedied (where one slab of sidewalk is significantly elevated compared to the next slab, causing a potential tripping hazard).  The solution is quite easy in that the seller/homeowner can fill the area with packed gravel or any other filling material so as to create a gradual or threshold-like change between the two uneven surfaces. 

In conclusion –when considering buying a property using FHA financing remember that basically the property must be habitable and safe for any and all occupants.  Also remember that depending on the lender, they may have “overlays” above and beyond what FHA requires and can ask for repairs and/or sellers to address issues not mandated by the FHA appraiser.  These tend to be from big banks that take extra caution.  If there are major repairs required and/or deficiencies and you still want to purchase the property, you can always look at an FHA 203k rehabilitation loan.  The purpose of the FHA 203k loan is to allow borrowers to finance in repairs and or major renovations.