The Federal Housing Administration (FHA) is part of the US Department of Housing and Urban Development. FHA mortgage insurance was created in 1934 to protect lenders against losses. The purpose is to expand homeownership opportunities by offering lenders less risk so that they can provide more mortgages. If a property owner with an FHA mortgage defaults on their loan, the administration pays the lender a claim for the unpaid principal balance. Last year, 84% of purchasers using an FHA loan were first-time buyers.
Because this type of financing is government-backed, properties must meet the FHA minimum standards which focus on safety and maintenance conditions. FHA buyers are advised to perform general and specialty inspections as needed, but it is actually the appraiser who determines whether or not a home meets these minimum standards. Whether you’re a homebuyer, a buyer’s agent working with FHA clients, or a listing agent deciding what terms would be suitable for your sale, understanding what an FHA appraiser is looking for is crucial. From the condition of the property to its compliance with safety standards, we'll explore some of the most common issues that can influence appraisal outcomes.
1. hot water tank pressure relief valve
Water heaters are required to have a temperature and pressure relief valve with piping that diverts water. The extension on the pressure relief valve should be within 6” of the floor to prevent scalding if the tank leaked.
2. peeling paint
Lead-based paint was banned from consumer use in 1978. Many homes built prior to this discontinuation contain lead-based paint which can lead to serious health problems. FHA requires any chipped or peeling paint to be scraped and repainted.
3. handrails
Steps that are 30” or higher need handrails and should be at a height of 30”. Handrails and balusters should use treated wood.
4. gutters
Gutters and downspouts should be in good condition and diverting water away from the home. Downspouts that terminate next to the foundation will need to be extended.
5. exposed wires
Wiring, electrical outlets, and light switches need to be covered. Any exposed junction boxes should have a cover added.
6. roofs at the end of life expectancy
In order to meet FHA minimum standards, roofs on all structures of the property should have a life expectancy of 2 years or more.
7. gfci outlets
Electrical outlets that are within 6’ of a water source, such as sinks or tubs, are required to be GFCI-protected.
8. well and septic
Appraisers will look at the condition of well and septic systems. These elements should have at least 2 years of life expectancy and should be functioning as intended. Both should be at least 10’ from the property line and wells should be at least 50’ from the septic tank and 75-100’ from leach fields.
9. heating systems
Heating requirements may vary in areas with warmer climates, but permanent heating systems are needed in Michigan and Ohio. They must be able to automatically heat all living areas of the home to a minimum of 50 degrees. Areas with building or system components that are subject to freezing must also be heated. These systems should rely upon a fuel source that is readily obtainable in the geographical area.
10. operational appliances
Appliances and mechanicals that are installed on the property must be in working condition. FHA does not require central air, but if the home is equipped with a central air unit, it must be operable.
11. pests
The FHA appraiser will look for signs of wood destroying insects and pests. If they find evidence of activity, they may require a pest inspection.
For more information on FHA minimum standards, visit www.hud.gov.