FHA Minimum Property Standards
What They Are and Why They Exist
The Federal Housing Authority (FHA) provides loans through FHA-approved lenders. These loans are great for people who may not have perfect credit scores or may not have a 20% down payment. However, the homes that qualify for an FHA loan must meet minimum property standards that benefit the borrower and the lender.
Learn more about the standards, explain why they exist, and some common problems that could prevent a property from meeting the minimum standards.
What Are FHA Minimum Property Standards?
The FHA has minimum property standards that a home must meet before buyers can purchase the house with an FHA loan. You may be familiar with local building codes for houses—the FHA typically incorporates these into its own minimum property standards during inspections.
However, the FHA has an additional requirement that home components be durable. Minimum durability requirements apply to components such as windows and doors, gutters and downspouts, kitchen cabinets, carpeting, and paint.
For example, the materials used for the following must be able to resist weather, corrosion, fire, and moisture:
- Building insulation
- Caulking and joint sealants
- Doors, windows, and glazing panels
- Exterior wall finishes
- Finish materials
- Gutters and downspouts
- Wood porches and decks
- Cabinets and vanities
There are also general minimum property standards. The property must be a single, marketable real estate plot and it must be “safe, sound and secure." Another component of the minimum property standards refers to the requirement to be livable, which includes:
- Continuous and sufficient supply of potable water
- Sanitary facilities and safe disposal of sewage. There should be a least one bathroom that has a toilet, sink, and either a shower or bathtub
- Adequate heating
- Domestic hot water
- Adequate electricity
- Adequate space
- Appliances are operational contribute to the home’s market value
How Do FHA Minimum Property Standards Work?
An FHA-approved appraiser inspects the home’s exterior and interior, documents their findings, and gives this information to the lender. The lender then determines which of the repairs are necessary for the property to qualify for an FHA loan.
“If the appraiser discovers deficiencies during their inspection process, the loan remains ineligible for funding until the defect is appropriately corrected,” Julie Aragon, owner of Julie Aragon Lending Team in Los Angeles, told The Balance by email. “The seller is often asked to remedy the conditions for properties that fail to meet the minimum standards or other potential financial arrangements resulting in a solution.”
Los Angeles real estate agent Julie Aragon notes that the actual appraisal only takes a couple of hours, but it can take a few business days before the final appraisal is delivered to the lender.
The FHA divides property issues into two main groups: cosmetic and required repairs. The rule of thumb for what constitutes a required repair is an issue that involves safety, security, or soundness:
- Safety: Health and safety of occupants are at risk
- Security: Security of the property is at risk
- Soundness: Physical issues and conditions affect the property’s structural integrity
In general, minor or cosmetic issues liked cracked windows, badly soiled carpet, old countertops, and minor plumbing leaks won’t hold up the closing process. Required repairs, however, usually have to be made before closing and may require an inspection.
Per Housing and Urban Development (HUD) guidelines, the repairs must be made by a qualified professional, such as professionally licensed engineers, home inspectors, or tradespersons.
The FHA will allow certain required repairs to take place up to six months after closing if weather impedes the repairs, provided certain conditions are met.
Common Property Issues
Common issues that don’t meet minimum property standards and would require further inspection or repair include:
- Underground piping, mechanical, and electrical systems not protected from corrosion
- Wood home without termite protection
- Insufficient supply of safe water
- Gutters and downspouts are not sufficient
- Doors are not durable and don’t lock securely
- Missing screens on certain windows
- Structural problems
- Leaking roof or roofing that needs to be replaced
- Faulty plumbing, electrical, or HVAC systems
- Standing water near the foundation
- Missing or inoperable kitchen appliances
Why Do FHA Minimum Property Standards Exist?
These property standards help the buyer avoid purchasing 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.”
If the borrower were to stop making payments and the home goes into foreclosure, the lender wants to know the home is in good enough shape that it can sell the house at a price that can mitigate financial loss.
- FHA minimum property requirements exist to ensure the safety, security, and soundness of a home so that it can be insured.
- Minimum property requirements give buyers and lenders peace of mind about the home’s condition and value
- Generally speaking, property requirements split issues into cosmetic flaws and required repairs.
- Required repairs must take place before closing, except in cases when weather conditions prevent repairs from taking place.