FHA Inspections—Repair Requirements and Guidelines for Loans
A Checklist of FHA Repairs to Watch Out For
Sellers were sometimes reluctant to accept offers from buyers who were obtaining Federal Housing Administration (FHA) loans prior to 2006. They occasionally even refused these offers because the FHA required too many repairs before a loan could close. The seller often ended up paying for them.
Then FHA inspections relaxed a little and repair guidelines softened beginning in January 2006. It still has minimum property standards that you'll come up against if you're dealing with this type of loan, but they're less stringent.
The FHA wants some sort of protection because these properties act as collateral for loans that they're backing. A home must be in reasonably good shape so it can be sold if the buyer should default on the loan.
Common FHA Repairs: Converted 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 to the underwriter to decide 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, or deducting for the cost of demolition.
FHA Repairs for Non-Permitted Additions
FHA's biggest repair concerns are health and safety issues, as well as protecting the security of the property and the structural soundness of the home. Non-permitted additions and remodels aren't always finished to code and could pose a danger.
The FHA might require that these issues be brought up to code, or it might not consider the value of non-permitted issues 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 an FHA loan might be denied anyway due to a non-permitted addition or remodel because the lender's investor guidelines prohibit them.
FHA Requirements for Wells and Septic Tanks
The FHA rule for minimum distance that must exist between wells and sources of pollution can be a potential game changer. For example, the distance between a well and a septic tank on a property must be at least 50 feet. A well must also be at least 10 feet back from a property line.
This can be an expensive situation to remedy.
FHA Repairs That Must be Completed Prior to Closing
Keep an eye out for the following conditions on or in a prospective property:
- Peeling paint in homes built before 1978, which might be a lead hazard
- Unpainted downspouts and broken rain gutters
- Rotting outbuildings in need of demolition
- Exterior doors that don't properly open and close
- Exposed wiring and uncovered junction boxes
- Major plumbing issues and leaks
- Inoperable HVAC systems
- Leaky or defective roofs
- Roofs with a life expectancy of fewer than three years
- Roof composition over shake
- Active and visible pest infestations
- Rotting window sills, eaves, or support columns on a porch
- Missing appliances that are usually sold with a home, such as a stove
- Bedrooms without minimally-sized windows for egress or windows with bars that don't release
- Foundation or structural defects
- Wet basements
- Evidence of standing water in the crawl space
- Inoperable kitchen appliances
- Empty swimming pools, pools without working pumps, and abandoned pools with mosquito fish
- Ripped screens
- No pressure relief valve on the water heater
- Leaning or broken fences
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
- Tripping hazards, such as heaving sidewalks
- Debris under the house that requires removal
- 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 the water is suspected of contamination
The FHA isn't concerned with cosmetic defects. Normal wear and tear won't throw up a red flag, provided that it doesn't interfere with the soundness, security, or safety of the dwelling.
Who Makes the Repairs?
It's not always the sellers who must make the required FHA repairs. It can depend on how the buyer's purchase offer is written.
Buyers' agents can specify a limit or dollar cap on the repairs. Sellers might agree to go along with this, or buyers might be free to do their own lender-required repairs with the sellers' permission.
Repairs can sometimes end up costing considerably more than the original appraisal estimation. This can set the buyer back some significant dollars at a time when the deal isn't even finalized yet. It's one thing if the sale ultimately goes through, but it can still mean a good bit of cash out of pocket right before closing.
How Long to Make Repairs?
The FHA additionally sets deadlines for repairs, so buyers and sellers don't have unlimited time to negotiate who pays for what.
The FHA requires that loans must close within 120 days of the appraisal, and the original appraiser must return to the property within this timeframe to confirm that any necessary repairs have been made. Otherwise, a new appraisal is required and the process starts all over again, although a 30-day extension is possible under some circumstances.