If you're purchasing a home using an FHA loan, or if you're selling a home to a buyer who's using an FHA home loan for the purchase, then you need to know about the FHA home requirements for 2017. We'll discuss why these minimum property standards exist, what some typical requirements are, and what can be done if the home you're buying or selling fails to meet the requirements.
FHA Loan Process
Before we get started, let's review the FHA loan process. It can be broken down into the following steps:
- Determine Eligibility. Contact a HUD-approved mortgage lender and find out if you're eligible for an FHA loan.
- Complete an Application. Complete the application process for an FHA home loan with your lender.
- Property Appraisal. Your lender will have an appraisal completed to determine the current market value of the home and to insure the house meets HUD's FHA home requirements.
- Underwriting. Your credit score, employment, income, and debt-to-income ratio will be evaluated to determine if you qualify for the loan amount.
- Closing. Sign the documents, pay the fees, get the keys, and get ready to move into your new house.
The property appraisal is an important step in the process as it has everything to do with making sure that the house meets the minimum FHA requirements for homes.
Why Does the FHA Set Home Requirements?
The Federal Housing Administration (FHA) provides mortgage insurance on loans made by FHA-approved lenders. insuring these loans has helped tens of millions of families purchase homes since the 1930s. FHA home requirements are also set forth to:
- Protect the health and safety of the occupants
- Protect the security of the property
- Correct physical deficiencies or conditions affecting structural integrity
When the FHA insures your loan, your house is the collateral. If you stop making your mortgage payments, your lender will foreclose on your home, taking possession of it in order to sell it and get back the money lent for the mortgage.
Since the FHA insures your loan, it is in their best interest to insure the home is worth the money being lent. Therefore, FHA home requirements are set, which must be met in order to qualify for an FHA loan. This insures that the lender can get a good price for the house in case of foreclosure. It also insures that new homeowners aren't faced with many home repairs early on in their home buying experience.
How Are FHA Home Requirements Enforced?
Before closing, an HUD-approved appraiser will come to the home. Using a form called the Uniform Residential Appraisal Report, the appraiser will go through the home answering specific questions about the property. This includes basic features of the house, like the address, square footage, number of rooms, and year it was built, as well as a condition rating for each area of the house, including the mechanical systems, appliances, exterior, interior, and attic.
The condition rating scales from 1-6. A score of 1 means the item is in excellent condition. A 3 is well maintained with normal wear and tear. A 4 starts to show signs of deferred maintenance and physical deterioration. And a 6 means substantial damage with defects and deficiencies severe enough to affect the safety, soundness, or structural integrity of the property. If there are any physical deficiencies or adverse conditions, these are also noted on the appraisal form.
For a condominium, the appraisal form is similar but includes questions about the homeowner's association (HOA), HOA fees, special assessments, and common areas.
Any areas in need of repair will be indicated on the form and must be repaired for the FHA loan to be approved.
What are the FHA Requirements for Homes?
HUD has accepted the model building codes, including over 250 referenced standards, and local building codes, in lieu of separate HUD standards. Inspections are meant to identify physical deficiencies that can affect:
- Health and Safety
- Structural Integrity
- may affect the health and safety of the occupants
- may affect the structural soundness of the property
- may impair the customary use and enjoyment of the property
Here are some common areas that the FHA focuses on and may require you or the seller to repair prior to closing.
The mechanical, plumbing, and electrical systems of the property must be inspected to insure they are in proper working order. This includes the heating and cooling systems.
This includes inspection of the foundation walls, exterior walls, windows, screens, roof surface, gutters and downspouts, and weather insulation.
While inspecting the attic space, the appraiser is looking at the insulation, ventilation, and the condition of the roof structure. He or she is looking for deficient materials, leaks, evidence of significant water damage, structural problems, previous fire damage, exposed and frayed wiring, or any other health and safety deficiencies.
Amenities and Features
Any amenities or features, such as fences, patios, decks, pools, or porches will be inspected for safety.
The floors, walls, and trim throughout the house will be inspected. Keep in mind that normal wear and tear will not be required to be repaired.
Appliances that come with the property, such as a refrigerator, oven, dishwasher, disposal, microwave, and washer and dryer, increase the value of the property and are included in the inspection. Appliances should be in working condition.
The FHA states that the home should be free from hazards, including:
- Toxic chemicals
- Radioactive materials
- Hazardous activities
- Potential damage from soil or other differential ground movements
- Ground water
- Inadequate surface drainage
- Excessive noise
Lead Paint and Asbestos
If the housing was built before 1978, lead paint hazards must be addressed and corrected. Asbestos in the building material can also be an issue and may require further inspection and removal.
New construction and houses less than one-year-old must comply with the CABO Model Energy Code, 1992 Edition, for residential buildings.
Normal wear and tear, minor defects, cosmetic conditions, and aesthetic imperfections that do not affect the working condition of the item are not required to be repaired. The FHA cites examples like worn off finish on wood floors, dead grass, or soiled carpets. Other examples include:
- Worn, soiled, or discolored flooring
- Scraped, scratched, dented, or cracked tile
- Cracks in walls
- Cracked windows
- Cracked sidewalks, or garage or patio floors
- Cracked roof tiles
- Worn shingles
- Worn countertops
- Nail holes
Can Repairs be Made to Meet FHA Home Requirements?
Yes. However, keep in mind that required repairs are limited to the repairs necessary to preserve the continued marketability of the property and to protect the health and safety of the occupants. If an item is functioning well but is old, that does not warrant replacement. Likewise, items suffering from cosmetic imperfections, such as cracked windows, are not required to be repaired.
Typically, the buyer will make a request to the seller to fix the items required to be repaired under FHA guidelines. If the seller agrees, then the items are usually fixed at the seller's expense before closing.
However, if the seller does not agree to the repairs, and the buyer is dependent on an FHA loan, then the property cannot be purchased. One way to get around this is to offer to raise the sale price of the home in order to reimburse the seller for the costs of the repairs. Getting a non-FHA loan could also remedy the issue. Another option is to apply for an FHA 203(k) loan, a program through HUD that would allow you to purchase a home in need of repair using an FHA loan.
Learn More About FHA Requirements for Homes
The HUD Handbook 4150.2 is a great place to learn more about the specifics behind FHA home requirements. Since HUD follows local codes when it comes to setting standards, the best place to get specific information is from your local appraiser. You can find one using the HUD appraiser search tool.