The Federal Housing Authority (FHA) provides mortgage loans through FHA-approved lenders. These loans are great for people who may not have perfect credit scores or a 20% down payment. But homes that qualify for an FHA loan must meet certain standards.
These standards exist for a few reasons. Some common problems can prevent a house from meeting the minimum standards for FHA loans.
What Are FHA Minimum Standards?
The FHA sometimes includes local building codes into its property standards during its inspections. It has an extra requirement as well. Certain parts of the home must be "durable."
This rule applies to windows, doors, gutters, downspouts, kitchen cabinets, carpet, and paint. Building materials must be able to resist weather, rust, fire, and moisture. This includes insulation, caulking, joint sealants, doors, windows, and glazing panels.
The rule applies to outdoor wall finishes as well, such as siding and paint, gutters, downspouts, wood porches, and decks.
The home must be a single, marketable real estate plot. It must be “safe, sound, and secure." The home must be livable. This includes a continuous and sufficient supply of potable water, sanitary facilities, safe disposal of sewage, space, and working appliances. At least one bathroom must have a toilet, sink, shower, or bathtub. There must be adequate heating, hot water, and electricity.
How Do FHA Minimum Standards Work?
An FHA-approved appraiser will inspect the home inside and out. They document their findings and report them to the lender, who then decides which repairs are needed for the house to qualify for an FHA loan.
The loan can't be funded until the seller fixes any problems that are found.
Los Angeles real estate agent Julie Aragon notes that the actual appraisal only takes a couple of hours, but it can be a few business days before the final appraisal is turned over to the lender.
The FHA divides issues into two main groups: cosmetic repairs and required repairs. The rule of thumb for a required repair is that there must be an issue that involves safety, security, or soundness.
A safety issue is one where the health of occupants is at risk. A security issue is one where their belongings would be at risk. An issue of soundness is one where physical issues or conditions affect the structural soundness of the home.
Minor or cosmetic issues liked cracked windows, badly soiled carpet, and plumbing leaks often won’t hold up the closing process. But required repairs will most likely have to be made before closing.
Housing and Urban Development (HUD) guidelines state that the repairs must be made by qualified professionals.
The FHA will allow certain repairs to take place up to six months after closing if weather impedes the repair process, but certain conditions must be met.
Common Property Issues
Common issues that don’t meet minimum standards and that would require further inspection or repair include:
- Underground piping, mechanical, and electrical systems that aren't protected against corrosion
- A wood home without termite protection
- An insufficient supply of safe water
- Faulty gutters and downspouts
- Doors that aren't durable and don’t lock
- Missing screens on certain windows
- Leaking roofing that needs to be replaced
- Faulty plumbing, electrical, or HVAC systems
- Standing water near the foundation
- Missing kitchen appliances or any that don't work
Why Do FHA Minimum Standards Exist?
These standards help a buyer to avoid buying a money pit, but their main purpose is to protect the lender, Aragon said.
“The property serves as collateral if the borrower fails to pay the mortgage payments, thus defaulting on the agreement and requiring the lender to foreclose on the home,” Aragon said. “If the FHA property appraisal and inspection process wasn't completed or [was] performed haphazardly, a higher likelihood exists that the lender finds the property's value as insufficient.”
A lender wants to know that the home is in shape that's good enough to allow it to be sold at a price that will avoid too much financial loss if the borrower were to stop making payments. This would force the home into foreclosure and result in a sale.
- FHA minimum requirements ensure the safety, security, and soundness of a home so that it can be insured.
- These standards give buyers and lenders peace of mind about the home’s condition and value.
- They often split issues into cosmetic flaws and required repairs.
- Required repairs must take place before closing, except in some cases when weather prevents repairs from being made.
Frequently Asked Questions (FAQs)
Who pays for the FHA inspection?
The buyer typically pays for an inspection.
When does the FHA inspection take place?
FHA inspections are usually conducted after the buyer and seller have signed a contract and the buyer takes the contract to the lender. FHA appraisals are valid for 120 days, so they can't be done any earlier than 120 days before the deal closes.
What does an FHA inspector look for in a refinance inspection?
The FHA inspection is the same whether it's for an original mortgage or a refinanced loan. The appraiser will look for the same minimum property standards.