Borrowers who want to finance their mortgage through a Federal Housing Administration (FHA)-insured loan must ensure the home complies with FHA minimum property standards. These standards ensure that homes meet requirements for buildings constructed under the US Department of Urban Housing and Development’s housing programs, such as HUD-based home equity conversion mortgages.
Criteria for FHA Minimum Property Standards
According to the US Housing and Urban Development (HUD), FHA loans have three criteria for the home to meet minimum property standards. These criteria are as follows:
- Safety. The property must be a safe and healthy environment.
- Security. The property should adequately protect its residents.
- Soundness. Structural defects should be absent from the property.
The minimum standards exist to protect the lender and the borrower.
How to Determine if a Property Meets FHA Standards
An FHA-approved appraiser will assess the property and generate a written report determining whether the home complies with the minimum standards. In the report, the appraiser will evaluate the property’s condition and give an opinion on the property’s value.
The appraiser must fill out a form based on the property they are appraising. These fall into two general categories:
- Single-family detached homes. The appraiser must fill out a Uniform Appraisal Report. In this report, the appraiser describes the property’s basic features, including square footage, number of rooms, the year the home was built, number of stories, and general condition of the property, including what renovation and repairs are needed. The appraiser will decide whether the property is sound, secure, and safe.
- Condominium. The appraiser fills out a similar report but also considers condominium-specific issues. There is an evaluation of common areas, amenities, homeowner association requirements, and the number of owner-occupied units on the property.
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What the FHA Guidelines Require an Appraiser to Evaluate
The FHA guidelines require the appraiser to review two aspects of the home—cosmetic attributes and more serious conditions requiring repairs. Cosmetic repairs are issues like cracked windows or plumbing leaks. Required repairs generally impact the property’s safety, security, and soundness.
Typically, cosmetic repairs won’t interfere with the closing process, but required repairs must be addressed before the loan can proceed.
Minor Defects that Won’t Impact Closing on a Property
The FHA provides clear guidelines on what is deemed as a minor defect or cosmetic repair and likely will not impede the property closing. These cosmetic repairs include (but are not limited to) the following:
- Cracked window glass
- Defective paint surfaces in homes constructed after 1978
- Missing handrails
- Cracked or amaged exit doors, but are otherwise operable
- Minor plumbing leaks (dripping faucets)
- Rotten or worn countertops
- Poor workmanship
- Defective floor finishes or coverings (soiled carpets)
- Damaged plaster, sheetrock, or other wall and ceiling materials in homes built post-1978
- Evidence of previous (non-active) wood-destroying insects
- Trip hazards (poorly installed carpeting, cracked sidewalks)
- Crawl spaces with debris
- Lack of an all-weather driveway surface
Common Property Issues That Need to Be Addressed Before Closing
In order to qualify for a FHA-insured HECM, borrowers must address certain property issues before closing. Some common property issues include the following:
Structural Issues
- Loose wiring or exposed electrical wires
- Damage to the exterior, including roof and foundation
- Lack of adequate attic and crawl space ventilation
Livability Issues
- Loose wiring or expose
- Electricity, water, and heat are not fully functioning Inadequate or unsafe sewer system
Property Issues
- Unsafe or inadequate property access
- Contaminated soil
- Standing water near the foundation
- Not meeting fire and safety codes
What Happens After An Appraisal That Meets FHA’s Requirements
In a purchase transaction, the appraiser conducts the appraisal after the contract is signed between the parties, and the buyer takes it to the lender. The FHA appraisal is good for 180 days, and the lender will decide whether to move forward with funding the loan.
Seniority is published by Finance of America Reverse LLC. The views expressed in this publication are those of the author alone and do not necessarily reflect the views and opinions of Finance of America Companies. This article is intended for general informational and educational purposes only and should not be construed as financial or tax advice. For more information about whether a reverse mortgage may be right for you, you should consult an independent financial advisor. For tax advice, please consult a tax professional.
