Here in Sonoma County Conventional and FHA lending does not automatically require a pest report. One major lender released policy change requiring pest report clearance it the report is included in the purchase contract. This has been the case off and on, but this may indicate a move back to the conservative blanket requirement of cleared pest items if the report is on the contract. Leaving the report off the contract or waiving the report are options to avoid termite clearance issues. Here are the details for one lender servicing Sonoma County.
1. A termite report and clearance is required on Conventional, FHA, CalHFA and USDA transactions if the Purchase contract indicates in section 4a, item 1, that the buyer or seller shall pay for an inspection. If the contract is not marked and the buyer does not sign the Wood Destroying Pest Inspection and Allocation of Cost Addendum, the termite report and/or clearance will not be required or requested by the lender.
However, if the purchase contract is marked yes and both the buyer and seller agree that they wish to waive the termite report and have done so by executing either a purchase contract addendum or an escrow amendment the lender will allow it to be waived as long as a termite report has not been provided to the lender or a termite report fee does not appear on the estimated HUD 1 or Final.
Please keep in mind a termite report cannot be waived once the lender has seen the report regardless if the contract calls for it or not. A termite clearance will be required and the lender may request that all of section 1 and II items be corrected depending on what the items require.
The following are examples of items that the lender will require to be corrected regardless if they are section I or II:
a. Major infestation, dry rot, fungus or termites that affect the soundness of the security of the property will be required to be corrected regardless if it is a section I or II item.
b. All section I items will be required to be completed. Please note the lender may require a section II item to be completed if it has to do with plumbing, roof leaks or health and safety issues.
c. If the report calls for a licensed contractor to further review and or correct. The lender will require the item to be reviewed and corrected by a licensed contractor via a roof and/or plumbing cert and the bill must be provided to the lender.
Repairs may be paid by buyer or seller. If buyer agrees to pay for repairs, additional monies must be verified to cover the additional repairs.
Termite reports are good for six months from the date of initial inspection for Conventional loans and three months for a VA or FHA loans.
VA Termite Reports
2. VA still requires a termite report and clearance to be completed on all transactions regardless of what the purchase contract states. Please remember VA requires both sections I and II items to be corrected no matter what the corrections are. The Veteran must sign the report and the following verbiage must be typed on both the 1st page of the report and the clearance. "I have received, read, & approved a copy of this report and hereby certify that all work required has been completed, however, the termite report and clearance was performed at no cost to me."
The Borrower (Veteran) cannot pay for the termite report; however the veteran is able to pay for the required repairs.
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