Qualifying for an FHA loan is often easier than qualifying for any other type of loan. However, you should know that there are particular requirements when it comes to the appraisal. The FHA wants to make sure that the home you are about to purchase is safe and sound as it is the collateral that you put up in order to take out such a large loan. If a home does not meet FHA requirements, you will not be eligible for FHA financing unless the issues are fixed and approved by the appraiser and/or inspector. Understanding the minimum property standards can help you recognize when a home may or may not get approved.
Why are there Minimum Property Standards?
Many people wonder why the FHA cares so much about the condition of the home; after all, it is not the bank or the FHA personnel that must live in it. But, when you think about the case of a borrower defaulting on their loan and the bank having to take possession, it makes sense to want the house in good condition. A house that meets certain requirements will be easier for the bank to sell and get their money back. If the house were not in good condition, it would cost the bank even more money to fix it up and then sell it – resulting in a loss. In addition, people that live in a home that is in good condition are much more likely to do whatever is necessary to avoid foreclosure and losing their home.
What are the Requirements?
There are not a lot of written requirements that appraisers can use for every home as a blanket policy. Instead, it is up to the appraiser to determine the safety, security, and soundness of a home. This means that the home is safe to live in for all occupants and that no one’s health is in danger as a result. It should also be able to stand up on its own without any physical issues that compromise its integrity. There are certain conditions that every part of the house must meet, but in general, the appraiser has say in what is considered safe and sound for the intended borrowers.
Keep in mind that the FHA does not care about cosmetic issues within a home. It also does not turn loans down because of minor defects in the home. If they are not going to compromise the safety of the occupants and the soundness of the home, it can often be overlooked. This does not mean that the appraiser will not point them out to you, the borrower; but it will not prevent you from getting an FHA loan. In general, as long as the item is working, even if it is not 100 percent operable or in perfect condition, it can pass through the appraisal.
Issues that could Prevent Financing
Things that could prevent you from getting approved for an FHA loan include things like:
- Leaky roof that causes moisture (mold could grow and become harmful)
- A roof that will not last at least 2 years
- A roof with multiple layers (3 is the max)
- Excessive noise or nuisance (too close to an airport, highway, or toxic site)
- Damaged electrical that poses a danger
- Lack of heat in every area of the home
- Any type of structural damage
- All fixtures must be present in all bathrooms (toilet, sink, and shower)
Taking Care of Issues
If you discover that the home you wish to purchase with an FHA loan has any of the above deficiencies, your loan is not automatically dead in the water – there are things you can do.
- Negotiate with the seller to have him fix the issues before the loan closes
- Negotiate a lower price with the seller so that you have the money to make the changes yourself
The FHA guidelines are in place in order to protect you from purchasing a home that is not safe and sound. While it sounds like the FHA does it in order to protect themselves and the bank, it is really for the greater good of everyone involved.