With FHA mortgages continuing to take more of the market share, questions often arise regarding what are the potential repairs might be required when the buyer is obtaining an FHA mortgage. In late 2005, HUD revised their minimum property standards requirements for FHA mortgages. Prior to this change, even some of the most minor repairs might have required correction.
FHA's minimum standards are much different today though. Currently, HUD only requires the repair of conditions that exceed cosmetic and minor defects or normal wear and tear. FHA Appraisers must still report all readily observable property defects. The lender's FHA Underwriter must then use professional judgment to determine if any of those property conditions requires any repair prior to closing.
FHA now permits an "As Is" appraisal for existing properties where minor defects are found, provided that they do not affect the safety of the occupant or the security and soundless of the property. Some examples of minor property conditions which no longer automatically require repair include:
- Missing handrails
- Cracked or damaged exit doors which are otherwise operable
- Cracked window glass
- Defective interior paint surfaces in homes constructed post 1978
- Minor plumbing leaks, such as faucets
- Defective floor finish or coverings
- Rotten or worn out countertops
- Damaged sheet rock, plaster, or ceilings in homes constructed post 1978
- Trip hazards
- Crawl space with trash and debris
- Lack of all-weather driveway surface
- Missing appliances (except for cook top stoves and wall ovens)
Property conditions which may require repair are those which may pose a risk to the health or safety of the occupant or the soundness of the property. Any of these items may require repair prior to closing. Some examples of items automatically requiring repair include:
- Inadequate access/egress from each bedroom to the exterior of the home (a minimum of one window per room should open)
- Leaking or worn out roofs
- Evidence of structural problems
- Defective interior/exterior paint surfaces in homes constructed prior to 1978
- Defective exterior paint surfaces in home constructed post 1978
- Missing/inoperable cook top or wall oven
- Exposed electrical outlet covers
- Broken glass
- Garage door, if electric, must open/close properly
For the exterior of the home, one of the biggest areas of concern is peeling or flaking exterior paint or exposed wood. There should also be no wood to earth contact.
FHA Appraisers are still required to test all plumbing, electrical, and heating/air systems. For this, all systems must be turned on a prior to the arrival of the Appraiser. The Appraiser is not allowed to turn on any breaker boxes, water shut off valves, temperature controllers, etc. This means that hot/cold water must flow from all faucets, all toilets must flush, and the heating/air system must heat or cool (whichever is appropriate for the season). This all must be properly functioning as soon as the Appraiser enters the property.
Should everything not be functioning properly, a final inspection will be required and must be cleared by the Underwriter prior to closing. The final inspection will be paid for by the buyer and the approximate cost is $150. With the number of REO properties on the market today, many of them may not have all systems already on and functioning properly. It's always a good idea to do a walk through and check everything prior to the Appraiser's visit.
Save your self time and money by ensuring everything is ready to go for the Appraisers visit.