Navigating FHA Loans - Minimum Property Standards
Haley Smith | March 1, 2021
Low down payments and low interest rates are some of the reasons why many homebuyers look to finance homes with Federal Housing Administration (FHA) loans. However, many homebuyers are surprised when they find out about the minimum property standards required by this type of loan.
The FHA has put these minimum property standards in place in order to protect both the buyer and the home lender. Homebuyers are protected from costly repairs that may be required if a home is not in a suitable condition while home lenders are protected in the case of loan default. Minimum property standards increase the likelihood that the property should maintain its value and therefore be easier to sell to reimburse a defaulted loan.
Prior to financing a home, the U.S. Department of Housing and Urban Development (HUD), requires that properties meet minimum property standards to ensure the safety of the occupants, the security of the property, and the soundness of the structural components of the property.
After a home goes under contract, an FHA appraisal is ordered by the homebuyer. The FHA approved appraiser will research the property and conduct an inspection to determine if the home is suitable to be covered by an FHA loan. To determine this, the appraiser will:
- Check to ensure that the home is worth the amount it is to be purchased for. This value is derived from various factors including the homes condition, number of bedrooms and bathrooms, home values in the area, among other things.
- Determine if minimum property standards are met. To do this, the appraiser will take an in-depth look at the home’s condition to determine that the home meets the safety, security, and soundness required for them to make a loan on the home.
Most Common Property Safety, Security, and Soundness Problems:
An FHA appraiser will examine various components of the property including the exterior, structural components, plumbing and electrical systems, heating systems, roofing, and any additional structures on the property that are to be transferred with the sale. Some of the most common FHA inspection issues that could be flagged by an appraiser include:
- Leaking roof, old roof, or roof with more than 3 layers
- Damaged windows – missing or windows that won’t open
- Peeling or cracked paint in homes built prior to 1979 (due to lead-based paint issues)
- Inoperable heating systems
- Pest issues
- Extensive water damage or water in a crawlspace or basement
- Open/exposed wiring
- Missing electrical fixtures
- Concrete cracks that may signal structural problems
- Septic or sewer issues
- Unsound or aging outbuildings
Because many homebuyers use FHA loans to purchase property, it is important that buyers and sellers do their due diligence to ensure that homes will meet the minimum property standards required by the FHA. If a home does not meet minimum property standards, this can have negative impacts on both buyers and sellers including losing out on homes and money.
When buying or selling a home, having a Realtor on your side that understands the ins and outs of financing is extremely important. Each deal is very different and requires a certain level of skill and care to ensure that things run smoothly. As your Realtor, we would work closely with you every step of the way, providing resources and guidance to ensure that you are informed in all aspects of the process. If you are interested in buying or selling, please reach out to us HERE.