FHA Repair Requirements and Guidelines for FHA Loans
A Checklist of Repairs to Watch Out For
Prior to 2004, sellers were sometimes reluctant to accept an offer from a buyer who was obtaining a Federal Housing Administration (FHA) loan—they might even refuse such an offer. The main reasons were that the FHA required too many repairs before the loan could close, and the seller often ended up paying for those FHA repairs.
The FHA has softened its repair guidelines since then, but it still has minimum property standards that you'll come up against if you're dealing with this type of loan. And that makes sense if you think about it. The property acts as collateral for a loan that the FHA is backing. The home must be in reasonable repair so it can be sold if you should default on the loan.
Who Makes the Repairs?
It's not always the sellers who must make the required FHA repairs. It depends on how the buyer's purchase offer is written.
A buyer's agent can specify a limit or dollar cap on the repairs. The seller might agree to go along with this even if she's reluctant to sell to an FHA buyer. Or a buyer might be free to do her own lender-required repairs with the seller's permission.
A buyer might switch from a conventional loan to an FHA loan in midstream. When the seller is informed of this, he might only agree to continue with the transaction if the buyer would be responsible for doing any FHA condition repairs that were called for in the appraisal.
The downside, of course, is that repairs could end up costing considerably more than the appraisal estimation. This can set the buyer back quite a few dollars at a time when the deal isn't even finalized yet. It's one thing if he ends up owning the property, but it can still mean a good bit of cash out of pocket right before closing.
FHA Repairs for Garages
FHA repair guidelines are not absolute. An underwriter can call for additional repairs and a converted garage is often a red flag.
It's up to the appraiser and the underwriter as to whether the interior of a converted garage must be dismantled. The appraiser also has the option of simply appraising the value of the home without the garage conversion and/or deducting for the cost of demolition.
FHA Repairs for Non-Permitted Additions
FHA's biggest repair concerns are health and safety issues, protecting the security of the property, and the structural soundness of the property.
Non-permitted additions and remodels are not always finished to code. Not only might the FHA require that these items be brought up to code, but it might not consider the value of non-permitted items in its appraisal if it decides to approve the loan without that requirement.
FHA repair guidelines are also subject to lender overlays. The FHA might approve a non-permitted structure, but the lender's investor guidelines could cause an FHA loan to be denied for a non-permitted addition or remodel.
FHA Repairs That Must be Completed Prior to Closing
The following checklist provides a pretty comprehensive guideline as to what to keep an eye out for on a prospective property:
- Peeling paint in homes built before 1978
- Unpainted downspouts and broken rain gutters
- Rotting outbuilding in need of demolition
- Exterior doors that do not properly close and open
- Exposed wiring and uncovered junction boxes
- Major plumbing issues and leaks
- Inoperable HVAC systems
- Leaky or defective roofs, roofs with a life expectancy of less than 3 years, composition over shake
- Active and visible pest infestation
- Rotting window sills, eaves, and support columns on a porch
- Missing appliances that are usually sold with a home such as a stove
- Bedrooms without minimal-sized windows or bedroom windows with bars that do not release
- Foundation or structural defects
- Wet basements
- Evidence of standing water in the crawl space
- Inoperable kitchen appliances
- Empty swimming pools, pools without a working pump, and pools with mosquito fish
- Ripped screens
- No pressure relief valve on the water heater
- Leaning/broken fence
FHA Repairs That are Not Necessary to Fix Before Closing
Some repairs don't have to be completed prior to closing, but you'll still want to keep track of them for future reference:
- Peeling paint in homes built after 1978
- Cracked glass in windows
- Minor plumbing defects such as a dripping faucet
- Missing handrails
- Damaged wall coverings in homes built after 1978
- Worn out carpeting or defective floor finishes
- Beat-up or damaged exterior doors that still open and close
- Trip hazards such as heaving sidewalks
- Removal of debris under the house
- Poor workmanship
- Evidence of previous or inactive pest infestation
- Replacement of flat roofs
- Testing of wells unless it's required by local jurisdictions or if water is suspected of contamination
It's important to keep in mind that the FHA isn't concerned with cosmetic defects. Normal wear and tear doesn't throw up a red flag provided that it doesn't interfere with the soundness, security, or safety of the dwelling.