FHA 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 2004. They sometimes even refused these offers. The FHA required too many repairs before the loan could close, and the seller often ended up paying for them.
But the FHA has softened its repair guidelines since then. 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.
It only makes sense that the FHA wants some sort of protection. Properties act as collateral for loans that the FHA is backing. A home must be in reasonably good shape so it can be sold if the buyer should default on the loan.
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' agent 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.
A buyer might switch from a conventional loan to an FHA loan in midstream. The seller might only agree to continue with the transaction if the buyer will be responsible for doing any FHA conditional repairs that are called for in the appraisal.
The risk is that repairs could 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.
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, protecting the security of the property, and the structural soundness of the property.
Non-permitted additions and remodels aren't 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
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 outbuilding 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 less than three years
- Roof composition over shake
- Active and visible pest infestation
- 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 minimal-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
- Removal of debris under the house
- Poor workmanship
- Evidence of previous or inactive pest infestation
- Replacement of flat roofs
- Testing of weFlls, unless it's required by local jurisdictions or if the water is suspected of contamination
The Bottom Line
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.