Many borrowers, real estate brokers and even loan officers are unfamiliar with the guidelines HUD and FHA require for a property to be eligible for a standard, FHA loan. Although there are other considerations regarding the financial portion, I’d like to discuss the appraisal part of FHA financing.
Basically, the property must be Safe, Secure and Sound and must meet HUD’s Minimum Property Standards for new construction and Minimum Property Requirements for existing construction. (The complete details are available on the HUD web-site).
First of all, the major systems must be on and operational. The major systems include heat, water/plumbing and electrical. If you are purchasing a foreclosed property that has been “winterized” this will not pass the initial appraisal inspection. The property will have to be re-inspected at additional fees.
The appraiser will verify the water is on by randomly operating sinks, toilets and tubs. This is also a good measure of water pressure. Water quality testing is not part of the appraisal inspection. However, if there is a strong odor or discoloration, additional testing will be recommended by the appraiser.
If the property has a well and/or septic system, as most properties have here in the Lakes Region of New Hampshire, the appraiser must be able to identify the location. This is sometimes difficult for older homes, but it is necessary to obtain FHA financing. A septic system inspector can usually help. If there are any signs of a system failure, the appraiser must include a recommendation for a complete inspection.
Items that will require repair prior to closing on the financing would include broken windows, doors or steps, inadequate or blocked doors and steps without handrails. As an appraiser, the most frequent deficiency I see is a deck without railings and a door/slider to “nowhere.” A good example is a second floor sliding glass door in a bedroom with the intension of building a deck in the future. However, the sliding glass door leads to a 20’ drop.
The appraiser must also view basements, crawl spaces and attics. Basements usually have sufficient access however, crawl spaces are another matter. The crawl space must be free of debris and trash and be properly ventilated with no moisture present. Attics are another challenge. When I place a call to schedule an FHA Appraisal Inspection, I also ask if there is an attic, even if it only has a small scuttle for access. Many borrowers and brokers are not even aware the scuttle exists because it is located in a closet. This area must be inspected to insure adequate ventilation. Although I usually bring along my step stool, I am not equipped to carry a ladder. According to HUD Guidelines, it is up to the borrower to insure the crawl space and the scuttle/attic is accessible to the appraiser. If not, the appraiser is required to report this to the Lender and most likely, another inspection (and $$$) will be required.
If the heating system is not running, such as in the summer months, it will be turned on by the appraiser to insure it is operational. If there are three layers of shingles on your roof or evidence of leakage, you may be required to replace the roof. If the house was built prior to 1978, there is a good chance there is lead paint in the home. This is not a problem unless the paint is peeling or chipping.
The site will require adequate drainage and sufficient access. Private roads are acceptable if there is a private road maintenance agreement.
It pretty much comes down to using common sense. Make sure the property is safe, secure and sound. If you have any questions, please feel free to contact me directly or check out the HUD web-site for some great information. Even if some items require additional inspections or repairs, it doesn’t mean the financing won’t be approved. Sometimes it just takes a few minor fixes to meet the guidelines.
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