2/4/2020 — This blog entry, originally written in 2011 has been one of the most read posts on my site. While FHA loans are still an incredibly good choice for many buyers, there are now some 3% down payment conventional loans that are also extremely popular.
I did want to point out, as I edit this post, that, at least in our busy area, it’s definitely far less likely that a Seller will assist with a Buyer’s closing costs. The market is HOT, with multiple offers and Sellers are just less willing to pay anything out of pocket except their own expenses.
In my practice, FHA loans are used for a large chunk of home purchases. Without a doubt, an FHA 203(b) can be a logical choice, especially for folks with credit scores below about 680 or so. (Note that while FHA lists credit score qualifications starting at about 580, most lending institutions pad that requirement raising the minimum score to the mid-upper 600’s.) With FHA’s awesome interest rates, the low minimum down payment requirement of only 3 1/2% and closing costs running right around 3% of the purchase price, FHA financing makes a home buying possible for many many buyers.
However, one thing to remember is that not only do YOU, the buyer, have to qualify for a mortgage loan, the home must also qualify under typical FHA 203(b) loans (the most common type). A home in good repair with typical maintenance generally is no problem … it’s the home that’s been neglected that can so often be problematic–those homes may need a Rehab loan FHA 203(k) where the cost of home repair is included in the home loan. FHA wants to be sure that the home they insure … the one you’re buying … has no health or safety issues that could compromise your ability to repay your mortgage.
As you tour a home with your agent anticipating that you’ll use an FHA loan for purchase, watch for these items. The FHA appraiser that values the home for your bank loan will be watching for these items as well:
Roofs that are at or near the end of their useful life, or in tough shape. Curling and missing shingles, gutters that are missing, lots and lots of moss. In our area, moss is common, but it should be minimal at best and easily removed with a light sweeping or cleaning. Most appraisers look for roofs that have an obvious 5 years or more life left in them. That original 3-tab roof that’s now 15 years old or so could be problematic. Note that some roofing companies will inspect a roof for you and write a letter (for a small fee) stating their opinion of the remain life of a roof. - Cracked or missing window panes. It’s certainly not necessary that the windows be newer — old, single pane windows can be just fine as long as they’re sound and in one piece. In a recent transaction, however, I did have an FHA appraiser insist that a window that had a broken seal (indicated by fogging between the panes) be replaced prior to closing.
- Peeling, cracked, or checked paint. Where the house is older than 1979, that paint could be lead based. Not a problem where the paint is in good shape, but where it could possibly be ingested — even on outbuildings. For that matter, asbestos potential in a popcorn ceiling that’s falling down or in old cracked siding could also be an issue.
- Water issues. This is one of the biggest hot spots for an FHA appraiser and rightly so. A quick glance under a sink to see rotting floors and moldy walls will nix a loan every time. Watch for soft floors around toilets and tubs, leaky faucets, roof leak stains in the ceiling. Water in the crawl space is a definite no-no as is significant water standing in the yard.
- Open/exposed wiring … Not good, not good. Electrical wires must be properly terminated, secured and finished in an electrical box and covered with the appropriate plate. Missing outlet plates even in a garage or outbuilding typically need to be in place.
- Missing electrical fixtures. Especially on foreclosure sales, the dining room light fixture is sometimes missing. Sometimes it’s all of the kitchen lights or bedroom center light fixtures. Remember, an appraiser is looking for “safety” problems!
- Missing appliances. A missing free-standing refrigerator, washer or dryer aren’t problems. It’s the built-ins such as a missing dishwasher, range, cooktop, or oven that’ll cause a comment in the Appraiser’s report. I’ll include the missing hot water heater and furnace here as well. A home has to have heat and water! (A quick note here as well … In 2019 an appraiser called out a missing freestanding wood-burning stove. The chimney piping was all there, right through the ceiling and roof, and the cap was on the top of the chimney, so no leaks. But the end of the pipe was open in the room and the appraiser called it.)
- Missing or damaged carpets, drywall, or typical finishes. Yeah, sometimes that plywood floor is a
problem as are huge holes in the drywall where the previous owner got creative and cut through the drywall to find who knows what. Note, however, mere cosmetic issues are generally not a problem unless the carpet is so soiled with maybe pet stains that it’s not cleanable. Remember that the goal here is to have a home that is safe and healthy. - Add-ons that were obviously not permitted. We’ve all seen them. The deck built on stilts that isn’t properly attached to the house, the garage/bedroom conversion with sloping floors, the rented basement apartment that doesn’t have its own meter and is accessible only through the main house door. However, I’ve yet to have an appraiser ask for permit information for ADUs (additional dwelling units) or in-law spaces that are part of a home.
- Critters in the crawl space or attic. Ugh. But facts are that four-legged and/or winged creatures like to infiltrate the crawl space and attic if allowed. Evidence of lots of droppings and open foundation or attic vents can be an issue. Especially if the appraiser pokes his/her head down into a crawl space or up into an attic and is greeted by a pair of green eyes looking back at him. Not so good.
- Concrete cracks. A small crack typically isn’t necessarily a problem, but that foundation crack extending from top to bottom and is over, say, a 1/4″ or so can be an issue. Same thing in large cracks in garage floors or sometimes even in walkways leading to the doors, especially where the surface is uneven or slabs have sunk.
- Septic or Sewer issues. A rehab loan or full repair will absolutely be needed to purchase a home with one of these problems!
- Unsound or Aging Outbuildings. Over the last few months I’ve had the pleasure of touring really neat old houses that had been updated and were really gorgeous. However … then there were these sheds/outbuildings/garages in the back yard that had definitely seen better days and were just waiting for a heavy snowfall or wind to drop them to the ground. I’ve seen marginal buildings with paint literally falling off the siding, full garden-thick moss and saplings on the roof, and vines creeping in through their foundations. You guessed it .. the appraiser called for repair.
A few things to remember:
- Not every FHA appraiser will note the same defects. Some appraisers will overlook moss on the roof, or a small corner crack in a window while others will insist that the item be corrected before the loan can close.
- Ideally, the Seller is able and willing to make repairs so that the home can be sold. However if that can’t be accomplished, the Buyer may need to pass on the home, change loan types, or make small repairs prior to closing (not a good idea, but it happens).
- Be absolutely certain that you are also working with an experienced FHA loan officer, especially if you decide to pursue an FHA 203(k) Rehab loan. You’ll need their help!
- Work with an agent that has experience with FHA transactions. He or she can often spot issues that will be problematic and can direct you to further resources as needed. I’m here to help, of course, especially if you’re buying in the “south of Seattle” area of Washington. Don’t hesitate to reach out to me here.
Im selling my home we’ve under priced it shows well but we bought it, it had holes in two of the windows and the window in the garden was all fogged up, also there had been a leak in the upstairs bathroom that caused a difference in the popcorn ceiling but the appraiser was friends with the realtor so the house passed inspection. Im wondering if it will pass our inspection because the we haven’t changed the windows or the toilet upstairs which is notin great condition also we have leak under the kitchen sink .We’ve had a offer 4000 under asking price do you think that’s reasonable because this is a highly desired neighborhood.
My ex husband looking to buy a home and go fha and soon I walk in the home all I smell was cat pee and cat sprayed all over the home down in basement to and they try to paint the walls to get odor out and wash the floor down there to .but it didn’t work and I told him you are not going to get that smell out the house and I’m supposed to move in with him. I’m concerned about the smell thank you joy rone
I’m in the process of selling a house, and we have hand built garage doors on our garage and no gutters on the house. When we bought the house there wasn’t any gutters is this something that will cause an issue for the appraisal the door functions well and if need be for the gutters can it get put into escrow for after the sale?
Are there requirements regarding slabs having a certain space from the ground to the exterior of dwelling
How are you I’m currently buying a home under fha I have one concern the owner took out 2 of the 3 wall ac units and just covered and painted the holes where the units sat before is that legal? you can clearly notice where the units where before will it bass fha inspection or apraisal?
In contract to buy a house with an FHA loan. During inspection, water leaked from upstairs bathtub through downstairs bathroom ceiling. Old water stain visible in ceilling about 12 inches in diameter. The water bubble that popped out from the ceiling is about a 1 inch diameter. The house is a relocation property, sold “As is” with no option period, but does have third party financing contingency. Will FHA ask for these repairs to be done prior to closing? And who has to pay, buyer or seller? The water leaked down when the inspector ran the tub, so he believes it is from the tub drain pipes.
I would love to see a answer to this question
My husband and I are in a pinch due to a landlord who has decided to break a lease three months b4 we have to renew so we put in an offer on a house. F h a loan. Now we r not getting an inspection as its not required by our lender but I’m worried about the appraisal. Half of the roof looks great and the other half has moss on it. Can we be failed if only half the roof has moss or will the appraiser take the whole roof into consideration? Thank u
Michele, it’s important to note here that I’m not a lender or appraiser, just an experienced real estate broker/agent. There are a couple of pieces here that are important to note:
1. I would absolutely recommend that you have an inspection. You need to know about the house.
2. Moss by itself isn’t necessarily something that an appraiser will call. But they might. If an appraiser calls a problem with anything, your lender is probably going to require that the issue be corrected as a condition of closing your loan.
Be sure to review this with your own real estate agent. They should have insight into all of this as well.
I am trying to buy a home with a fha loan. My final inspection failed due to rails that were just put up on the back porch not having weather sealant on it. Is this legit? I thought it was just safety and maintenance issues. I was going to paint the rails when I move in anyway.
Hmmm, painting or sealing a new handrail is not a condition I’ve seen around here, but appraisers periodically call different sorts of things probably depending on area. Heavens, I’ve had sellers put up a 2 x 4 handrail and had it be acceptable to an appraiser. Might be worth the trouble to go out there and just paint the thing and get it over with. …
I need to do some repairs to my home before placing it on the market. My homeowners insurance carrier had the roof inspected in 2014 and eight months later I got a notice from my agent that they won’t renew my policy unless it’s replaced by this April. My agent said he’ll just get me with another carrier if I can’t replace the roof in time. I rather use that expense on other repairs and repainting so was considering painting the asphalt shingles with three coats of a light grey acrylic paint so the granules are fully encapsulated beneath the coating to prevent further granule loss. I’m a housepainter by trade and done that before on rental properties with aged shingles. The paint coating held up fine for the next eight years until a major hail storm wiped out the shingles. I was curious if FHA, HUD, VA or any other lenders had any reservations over painted asphalt shingles? The roof has never leaked in the past and the decking is sound. It currently has two layers of shingles and I could add a third but then some inspectors dislike seeing three layers installed on plywood with roof rafters on 24″ centers. Painting will cost me $800 while a nail-over will run $3400. I’d hate to do either one and have both fail an inspection.
Bill, I’m not 100% sure about painting the shingles. I can’t say that I’ve ever had this question arise.
However, my instincts are screaming at me that you’ll need to replace the roof. When doing so, I’d probably have both layers torn off. I understand that the roof has never leaked and that your insurance carrier believes that the roof is sound. However, underwriters for loans may consider when the roof was last replaced and do the simple math based on the life expectancy of the type of roofing material.
Certainly some roofs last longer than the “posted” dates (i.e., 15-20 years on a 3-tab roof, etc.) but overall, most roofs need replacement within those time frames.
Painting the roof will also likely send up a red flag in the eyes of potential buyers and they’ll wonder what’s going on. I suspect that you’ll be facing an inspection repair item during your sale, which may ultimately cost you more in repairs at that time than it would if you had the work professionally done prior to listing the home for sale. And do have it professionally repaired … the warranty provided by a roofing company that can be passed on to a potential buyer is worth every penny!
If you have additional questions, please reach out to me via the Contact Me form or by phone … let’s talk through this.
Thanks for these great heads up. Really informative and helpful.
Thanks for the informative post! The picture of that roof is pretty startling, but we’ve seen worse in our time. Passing inspection has gotten even more difficult in these challenging economic times.
great post, i like the way you post