by Dan Krell
The FHA mortgage has recently changed to accommodate the changing marketplace. Due to its broad availability and higher loan limits, the FHA mortgage is more prevalent now than it has been in the recent past. So, if you are a home buyer, it’s a good chance that you may be applying for a FHA mortgage to purchase your home.
You can expect the FHA underwriting to be flexible yet careful and thorough. You know that FHA underwrites your credit as a buyer, but did you know that FHA underwrites the property condition as well?
FHA underwriters and appraisers are required to assess a home for security, safety, and soundness. To protect your interests as a home buyer (security), as well as the interests of the FHA and lender, the home you are buying must meet minimum health and safety standards, as well as being structurally sound. Any deficiencies identified by the FHA appraiser will be required to be repaired prior to your closing (HUD.gov).
Having a home inspection may allow you to identify easily seen deficiencies within the home. If there are any safety or structural issues, you can be fairly certain that the FHA appraiser will see these as well and require these items to be repaired. However, since your home inspector is not an appraiser nor is the appraisal a home inspection (and having different purposes), there may be disparity between the two.
Items that are often identified by the FHA appraiser as needing repairs include (but not limited to): defective (peeling or chipping) paint surfaces in homes built before 1978; broken windows; roof having less than two years of useful life remaining; drainage problems; lack of handrails on stairwells of three or more steps; pest infestation; damaged and/or non-functioning electric, plumbing, or HVAC systems; foundation and structural defects; underground fuel (i.e., oil) tanks; and any other health or safety issue (fhainfo.com).
The FHA addendum (GCAAR form 1330 in this area) explains who is to make the required repairs: the buyer typically gives the seller notice what repairs are to be made. However, if the seller refuses to make the repairs the buyer has the option to make the repairs themselves. If both the buyer and seller refuse to make the repairs, the contract becomes void.
Many times, the buyer and seller negotiate as to how the repairs are to be made prior to closing. However, if you are purchasing a bank owned home, the bank usually prohibits the buyer from making any alterations to the home prior to settlement- including repairs.
If the home is in poor condition, however, the FHA appraiser will likely reject the home for FHA 203b financing. Don’t worry, though, you can apply for the FHA’s renovation mortgage (FHA 203k). Additionally, you can apply for a FHA 203k if the home you are purchasing is conveyed “as-is” (such as a bank owned home or short sale) and repairs are required. Be careful though, not all FHA lenders offer the 203k loan; you can find a FHA 203k lender at HUD.gov.
The FHA mortgage is an excellent way to finance your home purchase. However be prepared because property condition can sometimes turn a seemingly good deal into a no-deal.
This article is not intended to provide nor should it be relied upon for legal and financial advice. This article was originally published in the Montgomery County Sentinel the week of September 29, 2008. Copyright © 2008 Dan Krell.