Taking the Mystery Out of FHA Property Standards

In 1998, we bought a little bitty house for our little bitty family using FHA financing.  That was two years before I joined the mortgage industry and I had no idea what FHA was or how it would impact me.  The lender just said FHA was what we should use so – we used it.

Unfortunately, our experience was HORRIBLE.  FHA required tons of repairs and we were constantly afraid that the seller would say “Enough!”, making us lose the home we loved.  Thankfully, they stuck it out and we made it to closing, but not before I’d learned to despise all things FHA.

I’m ashamed to say that it was a full seven years before I decided to forgive FHA and propose it to my buyers.  When I finally did, I quickly learned that the FHA I knew in the 90’s was not the FHA of today.  Property standards had SIGNIFICANTLY lightened.  The home’s condition rarely kills the sale anymore, and when it does – it probably should. 

Many Realtors are still afraid of FHA though, largely due to the fear of the home not meeting FHA’s property standards.  To help you overcome that fear, let me review the Top 12 FHA Property Standards that a Realtor should know about when working with FHA home buyers.

1.       Watch for the 3 S’s – FHA is looking at the soundness, structure and safety of the home.  Is it a safe place for the buyer to live?  Would the property be marketable if they had to foreclose?  Keep your eyes open for anything that would make them answer “No” to those two questions.

2.       Think 2 Years – FHA wants to know that the operable elements in the home (furnace, water heater, etc.) should be working for at least 2 years.  If they look like they’re on the last leg, an inspector will need to say they have 2 years of life or they will need fixed or replaced.

3.       Functioning Utilities – the house has to have running hot water, a working bathroom, heat, and electricity.  The appraiser needs to verify this so if anything isn’t turned on at the time of the offer (water, electricity, gas, etc.), get it turned on before the appraiser goes out.

4.       Acceptable Attic – if there is an attic, the appraiser must look at it.  They’re looking for proper ventilation for heat/moisture from the home and no obvious leaks.  A simple ‘stick your head up there and look around’ inspection is typically enough for this.

5.       Dry & Sound Basement – if the home has a basement, the appraiser is going to be looking for potential structural problems or dampness that could indicate structural or mold issues.  Basically, look out for water or big cracks.

6.       Crawl Space – if the home has a crawl space instead, the appraiser has to look at it.  He’s primarily looking for excessive dampness/pooling water and if it’s large enough for any ductwork or plumbing located there to be serviced.

7.       Ground Grading – this tends to go along with the wet basement situation.  If the basement is wet, the appraiser will look at the grading to see if that’s the cause.  If so, re-grading will be needed to divert water away from the house.

8.       Common Safety Issues – common safety issues with FHA are broken windows, doors, or steps.  Inadequate or blocked doors can also be a concern, as can steps without handrails.  Just a couple of handrail-free steps are typically fine, but once you get to 7-8 steps or more, a handrail should be installed.

9.       The Dreaded Lead Based Paint – this is the most common FHA property issue.  For homes built before 1978, look for chipping/flaking/peeling paint and look for it EVERYWHERE including all outbuildings, decks and fences. Pay attention to windows as they seem to be a popular area for peeling paint.  While this is a frequent problem, it’s also typically easy to fix.

10.   Life of Roof – the 2 year rule applies here too.  The appraiser needs to say if the roof has 2+ years of life.  If he’s not sure, a roofer will need to inspect it.  The only exception to this is if the roof is snow covered.  In those cases, this can be waived.

11.   Septic/Well Water – Our County already requires these to be inspected so that typically takes care of this.  The well water will need to be checked for Lead, Nitrates, Nitrites and Coliforms which is more than the county minimum, so tell the water lab the buyer is going FHA.

12.   Termite Inspection – a termite inspection is not required unless the appraiser notices evidence of infestation.  If they do, it needs looked into further.

Are these the only rules, you ask?  Nope, there are others that pop up in the rare situation, but these are the common ones that you as a Realtor should look out for.  These are items that you would likely be looking out for anyhow, though, because you want to make sure you’re buyer is getting a safe and sound home.  Now you just have them in a nice list format!

To learn more about these items, FHA financing in general, or any other aspect of mortgage lending, feel free to call me at (574) 707-0196 or email me at lori.hiscock@ruoff.com.  Good luck and Don't Fear FHA!