Lindashops27…, Home Seller in Thousand Oaks, CA

does an FHA loan require that Section 2 termite repaired be completed?

Asked by Lindashops2727, Thousand Oaks, CA Mon Aug 22, 2011

My buyer is getting an FHA loan. The mortgage broker and buyers agent are telling me that the section 2 termite work must be done before the loan can be funded.

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Hi Linda, I do these frequently and I dont agree with all the responses here. Basically, the FHA underwriter can ask for anything to be done. Period. The underwriting is wacky and the underwriter holds a lot of power in the transaction. IF the offer has termite on it then a termite report is a condition of the purchase and the termite report gets given to the underwriter. Particularly an inexperienced underwriter will ask for everything under the sun because all of their work is scrutinized and they want to cover their butts, especially in the hostile environment banks have created for themselves and with 10% unemployment, underwriters see their jobs as fragile. So, if the underwriter has asked for something you all need to work together to figure out what is being requested and how you can proceed, in fairness, IF you want to proceed. This is not a good time or a good market to get stubborn and while your contract may not require you as the seller to do any section 2 repairs, you want the buyer to get their loan, IF you want to sell your home.

For others out there reading this, one way to avoid termite issue with FHA is to not condition the purchase with the WPA or termite. FHA loans do not require termite clearance and can close without termite inspections.If the buyer conducts the termite inspection during the course of the purchase, just like any other inspection, they can cancel their purchase if this repair issue is too much for them, just like if a roof repair was too much and the seller is unwilling to repair or credit the buyer for the issue.

A fully executed contract with WPA/Termite can be amended in escrow, if all parties agree, to waive termite inspection and repair, and this works if the inspection report has not already been given to the buyers lender.

Keep in mind that even if you waive inspection for termite, on FHA and VA, appraisers will often call out conditions of the property that will need to be corrected and will be called out for by the underwriter, these can range from peeling paint, to termite dry rot damage that is visually apparent to the appraiser and more.

This is why I tell my buyers and sellers that nothing is a done deal until the loan is funded, you can even get conditions at the very last minute no matter how hard we are all working thoughout the entire term of the escrow.
3 votes Thank Flag Link Mon Nov 14, 2011
Well written!
Flag Thu May 1, 2014
203k loan is designed for home repairs.
From my experience with 203k loans, the best advice is to use a lender that offers assistance via third party with 203k processing.
This shortens the closing time by weeks. Try for more information.
1 vote Thank Flag Link Sun May 26, 2013
Section 2 termite work isn't required, per se. However it depends on exactly what items are listed in Section 2. I've had some termite inspectors put some more serious stuff in Section 2, it wasn't active infestation, but it was rotted wood and the underwriter (for an FHA loan) required the wood rot to be fixed as they claimed it was a issue of the home not being completely "sound".
1 vote Thank Flag Link Mon Aug 22, 2011
My sellers have been forced to complete both sections at the cost of not being funded; period. He who has the gold...
0 votes Thank Flag Link Fri Oct 18, 2013
FHA loans do NOT require ANY termite clearance if you leave it out of the contract. Do not check the wood destroying pests box and the lender will not require a termite clearance.
0 votes Thank Flag Link Sun Mar 25, 2012
What can be required by and FHA underwriter to approve the loan can be varied. Any inspection made part of the contract can be reviewed by the underwriter.

The underwriter has the right to request any repairs they believe impact the value or safety of the collateral (home). If the appraiser called out specific issues with the home related to section 1 or 2, it is not uncommon for the underwriter to ask for these items be conditions to approval or funding.

If the purchase was AS IS, this is less likely but ultimately it is up to the underwriter.
0 votes Thank Flag Link Sun Mar 25, 2012
I am buying a property being sold "AS IS" There are indications of dry rot or mildew in the patio cover attached to the garage. Can I still ask for seller to fix this rotted wood or call it off? Is this a serious matter and is this going to cost a lot to change the wood cover in the patio?
0 votes Thank Flag Link Sun Mar 25, 2012
VA ... yes. FHA ... typically NO.
0 votes Thank Flag Link Mon Aug 29, 2011
like Shane said,
if the inspector put stuff in Section 2 that should have been in Section 1.....

Tell your Realtor not to use that guy again.
0 votes Thank Flag Link Mon Aug 22, 2011
Hi Linda,

Every Lender is different. It's rare, but possible the Buyer's Lender is requiring the work be completed prior to funding. That being said, what was agreed to in writing between you and the Buyer with regards to Section 2? Did the Buyer's agree to be responsible for any Section 2 repairs? If so, then the Buyer's will pay those costs out of escrow. The escrow officer will include these costs when they make their final request to the Buyer's to submit to Escrow the remaining funds needed to close the escrow. This will allow for you to have the Termite company make the needed repairs so that the termite completion report can be submited to the Buyer's Lender for their final approval prior to loan funding. Your Realtor should be able to assist you in this process. Good luck!

0 votes Thank Flag Link Mon Aug 22, 2011
First thing to do is look at the contract. If the WPA form was used then see if buyer or seller is checked on section 2 items. If the underwriter is placing a condition that is not part of the contract, then you have to decide if you want to move forward with the transaction.

Last, section 2 items are usually very very very low cost. i.e. Moving dirt away from wood on the house or patio cover, turning a sprinkler away from the house etc. I have not seen very big laundry list items for section 2.

Can I ask what are the section 2 items?
Web Reference:
0 votes Thank Flag Link Mon Aug 22, 2011
Linda -

I had one situation out of many where the underwriter requested all Section 1 and Section 2 items completed as a funding condition. This was even when the inspection was not a part of the contract and the purchase was AS IS.

0 votes Thank Flag Link Mon Aug 22, 2011
I do not think it is being required. (Section 1 should be sufficient)
0 votes Thank Flag Link Mon Aug 22, 2011
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