If you are interested in purchasing a distressed home, or one that’s been foreclosed upon, it probably has some “deferred maintenance items” that need to be done. Getting the FHA Seller Repairs done by the Seller, however, is normally difficult. So the question becomes, what will FHA let you leave undone, while still giving you a FHA Loan on the home.
Here’s what we’re seeing with some “unique” foreclosed Bank Owned Properties and “handyman specials” in November of 2014.
FHA Seller Requirements and Un-Permitted Improvements:
In the last year or two, we’ve seen a couple of situations where a Seller has finished off a bonus room, upstairs, or converted a garage into a living space. If this was not properly inspected and permitted, that space will not be calculated in the value of the property. Sometimes, non-permitted additions and remodels are not completed to code. For instance, if the garage conversion doesn’t have adequate heat or insulation, the FHA appraiser / underwriter may require that these items be brought to code.
FHA Seller Repairs and FHA Appliance Requirements:
The Electricity needs to be working for an appraisal to be done. FHA is looking for a “cook-able” space. FHA does not require that you have a dishwasher, for instance… but if there’s a WHOLE in the cabinet, where a dishwasher goes, then there needs to be one there (sometimes we’ve seen folks purchase cheap ones from Craigslist just for the appraisal). We’ve also seen spaces for a Microwave, where a Seller filled it with Cookbooks, and no microwave was required.
The stove IS required, and the appraiser is required to turn it on, and be sure the burners are heating and the oven cuts on. An operable refrigerator isn’t necessary to meet FHA appraisal standards, but the kitchen should be designed so that a working refrigerator can be installed.
FHA Heating and Air Conditioning Requirements:
We’ve recently been contacted by someone wishing to purchase a historic home and finance the property with a FHA Mortgage loan. This particular home ONLY HAD a pot-bellied stove, and in speaking with Underwriters and 203k Inspectors (we’re not allowed to talk to actual appraisers), we don’t believe a home that is 110 years old with no central heat, in NC qualifies for this financing.
FHA defines Heating and Air Conditioning as separate from “appliances,” they only require the heating unit works and is able to heat the home. Although we get pretty warm in the summers here, FHA does not require that the Air Conditioning unit work… if you can see that the unit has been stolen, for instance, the Underwriter WILL require that it be replaced prior to closing. If there was never central air in the home, you don’t have to add it.
Unlike USDA Home Loans, FHA Underwriters do not have major restrictions on making a loan for a home that has an in-ground (or above ground) pool. Any home with a pool must have a working pool pump capable of circulating the pool water and the pool must have enough water in it so that the pump can effectively circulate the water. You don’t need to test the water or ensure that it is clear, but the water must not pose a health or safety risk. Your best bet is to ensure the water is clean and clear…
IF you live in an area of North Carolina that REQUIRES (code) a fence around the pool (many Cities and Subdivisions do), and there’s major repairs that need to be done to the fence – it will likely be noted on the appraisal, and the Underwriter will likely require that it be put to code. If there are missing or cracked tiles, do those need to be fixed prior to closing? Probably not.
We have more information on Basic repairs required by FHA, and what the Appraiser is looking for… for instance, the FHA Seller Repairs could previously include “re-grout” the bathtubs, but that’s no longer considered a required item.
FHA is, however, very interested in LEAD PAINT – so, if there’s an out building that looks like it has lead paint peeling, even if it is not a living space, it is probably going to be on the required repairs list.
Items The FHA Appraiser Might Not Require To Be Fixed Include:
- Missing Handrails
- Cracked or damaged exit doors that are otherwise operable (note – Garage to Kitchen Doors should be fire proof)
- Cracked window pane glass
- Defective paint surfaces in homes constructed after 1978
- Minor plumbing leaks (e.g. as leaky faucets)
- Defective floor finish/covering
- Evidence of previous (non-active) Wood Destroying Insect/Organism damage
- Rotten or worn-out counter tops (Active Leaks should be fixed)
- Damaged plaster, sheet rock or other wall and ceiling materials in homes (Active Leaks should be fixed)
- Poor or sloppy workmanship
- Trip hazards (uneven pavement, or cement walkways)
- Crawl space with debris
- Lack of all-weather driveway surface
- Ripped screens from Screen or All weather doors
Items You Can Count On Appraiser Noting for FHA Seller Repairs:
- Lead paint suspected in homes constructed before 1978 – Peeling paint in these homes where it’s possible that the “underlying” surface might contain lead paint will need to be fixed.
- OUTBUILDINGS that appear to have lead paint. This is huge in NC, where you can easily purchase a home, with 2 or 3 “sheds” on the property that are not living units. If it appears the building was constructed prior to 1978, and has peeling paint that MIGHT be lead paint on an under surface – it will need to be fixed.
- Inadequate access/egress from bedrooms to exterior of homes. A recent example of this was a loft Bedroom with a ladder propped up for access to the lower units. Should be permanent.
- Leaking or worn out roofs. Depending on the Lender, this can be a “biggie.” We’ve seen one bank require roof inspections if the Appraiser noted the roof appeared to be at least 10 years old.
- Evidence of structural problems. Again, a 100-year-old house with pilings and sagging floors? Count on a Structural Inspection being required.
- Standing water against the foundation and/or excessively damp basements – especially if there’s a concern or evidence of mold
- Hazardous materials on the site or within the improvements. In NC we have a problem with OIL Tanks buried in the ground.
- Faulty or defective mechanical systems, if there’s evidence of an active leak, or lights don’t work in a bathroom, heating won’t cut on… expect to have an inspection required, or repairs made. The appraiser is not checking everything about the system like an Inspection Report, they are checking to see “basically” does it appear to even work. We had one Bank Owned Property where the appraiser went in, and there was 2 inches of water on the kitchen floor… the leak has to be fixed PRIOR to closing!
- Missing Heating Units, Stoves, Fixtures. If the heating unit has been stripped from the property, or the stove is missing – FHA is going to require that those items are replaced – meaning they are on the list Seller Required Repairs. If you still want to purchase the property, they will have to be put in prior to closing.
NOT ALL OF THESE ITEMS ARE GOING TO BE FHA Seller Repairs – our Bank allows for a quick escrow, it the items are going to be done IMMEDIATELY after closing. There’s a ton of documentation required – however, some of the items CAN be done by the Seller, OR the buyer right after closing!
Looking for BASIC FHA Underwriting Guidelines in NC? We can help! Need more information on FHA Seller Repairs ? We know all about those too! We’d love to talk to you about how to make this work! Please call Steve Thorne, Mortgage Banker in Cary 919-649-5058. We offer FHA 203k Loans which are renovation loans, and we have NC Housing Finance Agency money available to work with FHA mortgage loans too!