FHA Minimum Property Requirements

By
Real Estate Agent with John Aaroe Group BRE #01708344

I remember doing my first FHA deal and learning about FHA minimum property requirements in the middle of the deal. 

Things such as the property cannot be located within falling distance of a utility tower, if the property has a pool it must be full with clean water at the time of FHA appraisal, there can be no exposed wires showing anywhere in the home,etc. led me to finding out exactly what FHA requirements are so that I have that knowledge ahead of time.

In other words, FHA approved properties must be deemed 100% safe and habitable by FHA standards.

I thought I would pass this along.  It is an excerpt from the FHA Minimum Property Requirements from the HUD website.

This is really critical to know when you have buyers who are utilizing an FHA loan.  It will save you time and potential headaches knowing whether a property they are interested in will pass FHA requirements having this knowledge ahead of time.

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Minimum Property Requirements (MPR) and Minimum Property Standards (MPS)

For new construction to be eligible for FHA financing, it must comply with HUD's Minimum Property Standards (including 24 CFR 200.926d). Existing construction must comply with HUD's

Minimum Property Requirements (HUD Handbook 4905.1). .

In the performance of an FHA appraisal, the appraiser must denote any deficiency in the appropriate section(s) (site issues in the site section, improvement issues in the improvements section) of the appraisal report. The appraiser is to note those repairs necessary to make the property comply with FHA's Minimum Property Requirements (MPR) or Minimum Property Standards (MPS) together with the estimated cost to cure. The lender will determine which repairs for existing properties must be made for the property to be eligible for FHA-insured financing.

Cosmetic repairs are not required; however, they are to be considered in the overall condition rating and valuation of the property. Examples of cosmetic repairs would include surface treatments, beautification or adornment not required for the preservation of the property. For example, generally, worn floor finishes or carpeting, holes in window screens, or a small crack in a windowpane are examples of deferred maintenance that do not rise to the level of a required repair but must be reported by the appraiser.

The physical condition of existing building improvements is examined at the time of the appraisal to determine whether repairs, alterations or inspections are necessary - essential to eliminate conditions threatening the continued physical security of the property.

Required repairs will be limited to necessary requirements to:

• protect the health and safety of the occupants (Safety)

• protect the security of the property (Security)

• correct physical deficiencies or conditions affecting structural integrity (Soundness)

A property with defective conditions is unacceptable until the defects or conditions have been remedied and the probability of further damage eliminated. Defective conditions include:

• defective construction

• other readily observable conditions that impair the safety, sanitation or structural soundness of the dwelling

Typical conditions that would require further inspection or testing by qualified individuals or entities:

• infestation - evidence of termites

• inoperative or inadequate plumbing, heating or electrical systems

• structural failure in framing members

• leaking or worn-out roofs

• cracked masonry or foundation damage

• drainage problems

Appraisers are reminded not to recommend inspections only as a means of limiting liability. The reason or indication of a particular problem must be given when requiring an inspection of any mechanical system, structural system, etc. 4150.2 1/06 D- 3

These guidelines are provided to assist in the examination of the property. To perform this analysis, the appraiser must have full access to all property improvements.

If unable to visually evaluate the improvements in their entirety, contact the lender and reschedule a time when a complete visual inspection can be performed. This includes access to the crawl space and attic. The appraiser is not required to disturb insulation, move personal items, furniture, equipment, plant life, soil, snow, ice or debris that obstructs access or visibility.

An inspection done in accordance with these guidelines is visual and is not technically exhaustive. These guidelines are applicable to buildings with four or less dwellings units and their related property improvements.

Unacceptable Locations

FHA guidelines require that a site be rejected if the property being appraised is subject to hazards, environmental contaminants, noxious odors, offensive sights or excessive noises to the point of endangering the physical improvements or affecting the livability of the property, its marketability, or the health and safety of its occupants. Rejection may also be appropriate if the future economic life of the property is shortened by obvious and compelling pressure to a higher use, making a long-term mortgage impractical.

If the condition is clearly a health and safety violation, contact the lender for further instructions before completing the appraisal. The lender must clear the condition and may require an inspection or reject the property. If there is any doubt as to the severity, report the condition and submit the completed report. For those conditions that cannot be repaired, such as site factors, the appraised value is based upon the existing conditions.

Site Hazards And Nuisances

The appraiser must note and comment on all hazards and nuisances affecting the subject property that may endanger the health and safety of the occupants and/or the structural integrity or marketability of the property, including: subsidence, operating and abandoned oil and gas wells, abandoned wells, slush pits, heavy traffic, airport noise and hazards, runway clear zones/clear zones, proximity to high pressure gas, liquid petroleum pipelines or other volatile and explosive products, residential structures located within the fall distance of a high-voltage transmission line, radio/TV transmission tower, etc., excessive hazard from smoke, fumes, odors, and stationary storage tanks containing flammable or explosive material.

If hazards or nuisances are observed, the appraiser must describe the condition(s) and make a requirement for repair and/or for further inspection, and prepare the appraisal "subject to repairs" and/or "subject to inspection" in the site section of the report. Supporting documentation provided by the appraiser may include extra photos or copies of site studies or analyses, property reports, surveys or plot plans, etc.

Any and all references to Valuation Condition items addressed in Chapters 2 and 3 are to be addressed in the appropriate section of the applicable appraisal reporting form. For example, Chapter 2, Sec. 2-2-E, Slush Pits, instructs: "If there is any readily observable evidence of slush pits, mark the "yes" column in VC-1". The new protocol will require the appraiser to address this condition in the site section of the appraisal report and note that the property may not be eligible for FHA financing referencing the information contained in chapter 2; otherwise, the guidance provided by chapters 2 and 3 remains in effect. 4150.2 1/06 D- 4

Soil Contamination

Check readily observable evidence of hazardous substances in the soil. Conditions that could indicate soil contamination include pools of liquid, pits, ponds, lagoons, stressed vegetation, stained soils or pavement, drums or odors. If any of these conditions exist further analysis or testing is required.

Note the proximity to dumps, landfills, industrial sites or other sites that could contain hazardous wastes.

If there is any readily observable surface evidence of leakage from an underground storage tank, further analysis or testing is required. If there is readily observable evidence of on-site contamination, make a requirement for further inspection in the site section of the report.

Grading and Drainage

Check for readily observable evidence of grading and drainage problems. Proper drainage control measures may include gutters and downspouts or appropriate grading or landscaping to divert the flow of water away from the foundation. If the grading does not provide positive drainage from the improvements, make a repair requirement. Note any readily observable evidence of standing water near the property that indicates improper drainage. If the standing water is problematic, make a repair requirement in the site section of the report.

Individual Water Supply and Sewage Systems

Identify the type of utilities in the site section of the appraisal report. When water and sewer are private, well and septic testing is to be governed by state or local requirements; however, the appraiser must note any readily observable deficiencies regarding the well or septic system. The appraiser is also required to report on the availability of connection to public and/or community water/sewer systems. The lender is responsible for the determination of the feasibility for requiring connection.

Wood Destroying Insects/Organisms

Report any evidence of infestation in the "improvements section" of the appraisal report under "foundation" by simply marking the evidence of infestation box.

Private Road Access and Maintenance

Address private road access in site area under "off-site improvements". Private streets must be protected by permanent recorded easements or be owned and maintained by a HOA. Shared driveways must also meet these requirements.

Each property must have vehicular or pedestrian access. If the property is inaccessible by foot or by vehicle, note this deficiency. FHA defines all-weather surface as a road surface over which emergency vehicles can pass in all types of weather. If the property is not provided with an all-weather surface, note the absence of such in the appraisal..

Structural Conditions

Appraiser must answer yes/no question on the appraisal addressing physical deficiencies affecting structural integrity. If answered "yes", provide an explanation addressing the nature of the deficiency and recommend repairs, alterations or required inspections, in the improvements section under physical deficiencies/adverse conditions.

Foundation

Report any evidence of dampness or settlement by noting such under the foundation section of improvements description. 4150.2 1/06 D- 5

Describe the nature of the deficiency and recommend repairs, alterations or required inspections, if any, in the improvements section under physical deficiencies/adverse conditions.

Roofing

Identify roofing material type, and the condition observed, in the improvements section of the report. The nature and degree of any noted deficiency will determine whether the appraiser addresses the deficiency in the narrative comments area of the report under "condition of the property", or "physical deficiencies" affecting livability or structural soundness.

Mechanical Systems

Report on the condition of the improvements, which includes mechanical systems. The nature and degree of any noted deficiency will determine whether to address the deficiency in the narrative comments area of the report under "condition of the property", or "physical deficiencies" affecting livability or structural soundness.

Check mechanical, plumbing and electrical systems in the subject property to ensure that they are in proper working order. This examination entails turning on the applicable systems and observing their performance. If any conditions exist that would affect the health or safety of the occupants, condition the appraisal on the repair or alteration of the condition" and/or a "required inspection." The following is not an all-inclusive list, but a listing of the more common readily observable property deficiencies.

Electrical System

• Examine the electrical system to ensure that there is no visible frayed wiring, or exposed wires in living areas and note if the amperage appears adequate for the property.

• Operate a representative number of lighting fixtures, switches and receptacles inside the house, garage and on the exterior walls and note any deficiencies. If the appliances present at the time of the inspection do not appear to be reasonable (undersized), determine if there is adequate amperage to run "standard" appliances, as per local code.

• The appraiser is not required to insert any tool, probe or testing device inside the panels or to dismantle any electrical device or control.

Plumbing System

• Flush the toilets and turn on a representative number of faucets to determine that the plumbing system is intact, that it does not emit foul odors, that faucets function appropriately, that both cold and hot water run and that there is no readily observable evidence of leaks or structural damage under fixtures.

• Turn on several cold water faucets in the house to check water pressure and flow. Flushing a toilet at the same time will also reveal any weaknesses in water pressure.

• If the property has a septic system, examine it for any signs of failure or surface evidence of malfunction.

Other Health and Safety Deficiencies

Address all health and safety issues, physical deficiencies or adverse conditions that affect the livability, soundness or structural integrity of the property. The nature and degree of any health and/or safety issues will determine whether to address said deficiency in the narrative comments area of the report under "condition of the property", or "physical deficiencies" affecting livability or structural soundness. 4150.2 1/06 D- 6

Lead Based Paint Hazards

For any home built prior to 1978, check for evidence of defective paint surfaces, including: peeling, scaling or chipping paint. For all FHA insured properties, correction is required to all defective paint surfaces in or on structures and/or property improvements built before January 1, 1978 in accordance with 24 CFR Part 35. Provide a detailed description and identify the exact location of any deficiency under "physical deficiencies" affecting livability.

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Show All Comments
Rainer
125,319
Hope Goss
Ventura Property Shoppe - Ventura, CA
Ventura Real Estate

Wow, that's some pretty detailed information about FHA requirements.  Thanks for sharing.

Mar 14, 2009 10:56 AM #1
Ambassador
935,720
Ralph Gorgoglione
John Aaroe Group - Los Angeles, CA
California Real Estate (800) 591-6121

I know! 

That's why I figured I would share it.

It really helped me to know this when showing property becauses it helps me avoid getting into escrow that I know are not going to work for FHA Buyers.

Mar 14, 2009 11:07 AM #2
Rainmaker
385,524
Pat Champion
Coldwell Banker Camelot Realty - Mount Dora, FL

What great information for FHA requirements-thanks for sharing.

Mar 14, 2009 11:37 AM #3
Anonymous
Dominic Valenti A0799

Can you tell me where I can find the MPS related to train tracks. I know I've read it in one of the handbooks that it needs to be 500 ft. away. That's not very practicle in an urban environment. Please advise ASAP. Thanks.

Oct 16, 2010 05:29 PM #4
Rainer
82,505
Doug Laurent
Homefax Inspections, LLC - Minneapolis, MN
Mpls. & Extended Metro Area

I know you made this post nearly 2 years ago but it came up on a google search and it was exactly what I needed.

 

DOug

Dec 21, 2010 06:56 PM #5
Anonymous
AEN

This is an extreamly good article-

On the question of Rail Road Tracks-

No requirements for Existing Construction (over 1 year of age) - Noise exposure by itself will not necessarily result in the rejection of the property for FHA financing. Marketability factors should be considered, this does not include condominiums.

On the subject of soil contamination-

If a leak concern is reported to the Lenders Underwriter the Underwriter will order a test of the tank.  If the Appraisal does not have a report of a recognized environmental concern, the tank will not be tested.  There are no other requirements or provisions for tank testing unless requested by the BUYER of the property. So, "Mr. & Ms. Home Buyer" it is on you to do your due diligence, therefore, require that any and all tanks on the property be tested.  If oil is contaminating your property, your property could become worthless. Read more on this - FHA Loans - http://www.LoanStaff.com -

 

 

Jan 07, 2011 08:04 AM #6
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Ralph Gorgoglione

California Real Estate (800) 591-6121
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