A termite report is a tool like any other tool there is a time and a place for it. As an investor I always got a termite report as I think it is just good common sense to have eyes on the purchase. The cost of a termite report makes it a "no brain-er".
There seems to be a consensus among lenders that the streamlined k may not need a termite report provided there are no outwardly signs of termite damage or dry rot that no termite is necessary. I like them on all 203k projects frankly but are they required?
How about the Full 203k. If you look at the Borrower's Acknowledgment you will see that a clearance is a requirement of the Full 203k. If a clearance is "required" is a termite report required. Not by HUD but most lenders are in agreement that if a clearance is required at the end of the project then a report is mandated by the lender. This seems universal. Again it is just good common sense to order a termite or structural pest report.
There are many lenders who only do the streamlined k loan and if they see that a termite report has been ordered their guideline internally says "this is now a Full 203k" as someone must have seen something that was structural damage. That isn't actually true, I would order one in any case, even if there were no outward signs of damage. It is the best inspection you can get for the price they charge.
FHA also wants a report on "all structures on the site" and people miss this all the time. They get one on the house and forget the outbuilding that is just as large in many cases and is located in close proximity, even 30 feet away is close proximity. So you fail to include the out building and it has live termite infestation or beetles and you clear the house, as you are driving away the house is reinfected from your own property. Order a "supplemental report" on the out buildings. Your buyer needs to know if there is "active infestation" in those other buildings on the site. In most cases it is the active infestation that needs to be cured along with health and safety issues to satisfy the loan requirements. No major renovation may be required though they may want some repairs.
If you are a termite or structural pest inspector you may incrase your revenue simply by knowing this requirement and offering the suplimental report when you find out it is an FHA sale. You will actually be doing all a favor and possbily helping them clsoe faster by not having to have you back out later.
Mike Young, 203k Team Leader
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