Why won’t this property pass for FHA financing?

I get a lot of questions about FHA / HUD standards and what a property needs to qualify. Here’s the deal: FHA is primarily concerned that everything in a house functions properly and that there are no health and safety issues. FHA continually says, “Soundness, Safety & Security” as their motto. As an FHA certified real estate appraiser, the inspections I do are based upon guidelines from the United States Department of Housing & Urban Development (HUD).

I was in the town of Locke a couple weeks ago and I snapped the following shot of a property I happened to pass. Do you think this property would qualify for an FHA loan?

Here is a sample of some of the things I look for while on an FHA inspection:

  • Appliances must be in functional use. If there is a hood, it must work. If there is a dishwasher it must work. If there is a stove, it must work…
  • The heating unit must be in working order (and AC if applicable)
  • Paint must not be chipping, peeling, or flaking on homes built before 1978. There must be no defective paint or exposed wood for properties built after 1978. If there is an issue with paint, it needs to be cured properly by actually scraping the paint instead of just painting over with new paint.
  • The water pressure must be adequate for the house. Appraisers flush toilets, turn on all faucets and ensure that both hot and cold water are working.
  • The water heater must be in working order.
  • The attic must be inspected and we make sure that there are vents, no evidence of a previous fire, no exposed or frayed wires, and that sunlight is not beaming through.
  • Attics and crawlspaces are to be viewed at least with head and shoulders into them (if present)
  • The crawl space must be inspected and we make sure there is not excessive debris or signs of standing water or any other foundation support issues.
  • Electrical outlets must work.
  • Toilets must flush and be mounted
  • No leaks in the roof.
  • The carpet does not have to be perfect (stains or minor tears okay). If there is a health or safety issue with the flooring, then that is a red flag.
  • A house does not need new interior paint.
  • Windows cannot be broken. Cracks can be okay so long as there is not an issue with safety, soundness and security.
  • No dangling wires from missing fixtures.
  • Water heaters must be properly attached with straps (local code says that water heaters need to be strapped and FHA requires water heaters to meet code).
  • Stoves are not required unless they are drop in stoves.
  • FHA doesn’t require air conditioning, insulation, smoke detectors or the like, but if they are there they must work as they were intended.

The photo above clearly demonstrates there might be a safety issue with the structure. It doesn’t look very sound, does it? Do you see any other violations of HUD minimum standards?

This type of knowledge is vital for first-time buyers, sellers and investors especially. Please let me know if you have any questions. I am glad to help buyers, agents, investors, brokers and anyone else know more about FHA standards and the appraisal process. FHA loans have really dominated the market in the Sacramento Region, so it’s important to be aware of potential issues that might make or break a deal. You can reach me at 916-595-3735 or ryan@lundquistcompany.com.

Comments

  1. says

    This is a great list of of items. Is the house in the picture above leaning forward? It looks like it might fall over and crush the truck in front of it. From the outside it does not look safe or sound!

    • says

      Thanks Bryan. Yes, this property is really leaning just as bad as it looks. This property is actually commercial I believe, but it is a great example of a property that would have some big issues under an FHA loan.

  2. says

    Ay, love the list, but love the photo even more.

    Was recently down in Buda (TX) on an assignment, and saw a limestone house leaning out like this. I thought it was an illusion until I drove right up next to it and sure enough, the top of the front of the second story had to be leaning out a good foot from plumb. Couldn’t have been more than 15 years old, but yikes, wouldn’t be dancing in that one.

    At least the FHA rules keep some houses from deteriorating too much, or at least gets some of them fixed up a bit before being sold.

    Alison

    • says

      A limestone house? I’ve never heard of such a thing. I’m going to have to google that to see what you’re talking about. :)

      HUD really is interested in the longterm economic life of a property. Not only do they want to ensure there are no health and safety issues, but they are intersted in improving neighborhoods as our housing stock gets older an older.

    • says

      That’s great to hear. Feel free to give me a ring any time you have a question. If I know the answer, I’ll be glad to talk shop. By the way, I checked out your website and noticed you’re doing videos. I run a site at http://www.SacramentoRealEstateTube.com. I’d love to put up some of your videos. It’s free and just a resource for locals to get good real estate information.

  3. K.P says

    Hello I live in Virginia Beach VA and am interested in a home that is on the brink of foreclosure. I was told by the listing agent that the home could not get an FHA appraisal so I could not use an FHA loan. The home has been on the market for close to three years and although the physical damage is visible all is not discernable. Is there a way to get a copy of an FHA appraisal to rectify unseen deficincies found by the inspector during the appraisal process?

    Thank you,
    K.P

    • says

      Hi K.P. You can always hire an FHA appraiser to appraise the property. That way you can know the value of the house and any potential FHA issues too. Or if you don’t need a value, just hire an FHA certified appraiser (make sure the appraiser is certified) to walk through the property and do a thorough inspection for potential FHA issues. You would need the Listing Agent or owner’s permission of course to do this. I’m not sure what the agent means by “could not get FHA appraisal.” I assume the agent means the house has too many repairs and won’t qualify for FHA financing. If you did end up trying to do an FHA loan, the lender would hire an FHA appraiser automatically from FHA’s approved appraiser list.

      There probably isn’t an FHA appraisal on file for this home unless it happens to be a HUD home. This is why I am recommending you either get a full appraisal or hire an appraiser as a consultant to do an inspection.

      If the property is in disrepair and really has quite a few issues, you can always consider an FHA 203K loan, which is basically a repair loan. You can handle a fairly substantial amount of repairs with this loan, so that is always an option for a property that wouldn’t be eligible under a normal FHA loan.

      Let me know if you have any questions.

      By the way, on a different note there are rumors of the Sacramento Kings moving on to Virginia Beach. Is there a big movement to get a professional team in your area? I’m curious to hear your take.

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