FHA Contingencies

Asked by David Nuss, Salem, OR Sun Mar 25, 2012

It seems like most realtors and loan officers I talk with have quite a varying degree of understanding on what FHA expects to be done by the seller to satisfy an FHA loan in regard to the condition of the home. Answers run any where from anything the buyer wants done to everything on the Pest and Dryrot Inspection report.

My brief research on the topic (it is not all inclusive) found that homes purchased with a FHA loan must met a three way test - Safety, Security and Soundness.
* Safety: protect the health and safety of the occupants
* Security: protect the security of the property (security for the FHA insured mortgage.)
* Soundness: correct physical deficiencies or conditions affecting structural integrity

The P and D report form is now a Wood Destroying Insect report - notice Dryrot is not included.
•When a clear inspection report is required on an existing property seeking FHA mortgage insurance, NPMA-33 form, Wood Destroying Insect Report must be completed.

Your experiences?

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HLR, , Oregon
Sun Mar 25, 2012
You got it, the 3 way test is a good way to explain it, as an FHA approved appraiser, we look for those items. As one that has been on their list since the early 80's, Most agents have it down, but some think it's just like a conventional, and these days I would say Conventional requirements are more like FHA.

Best to you all, but the HUD website has all the requirements if you want to read the Handbook.

1 vote
It seems like FHA loosened requirements a lot in 2005 and many are still using a stricker definition than necessary these days. Since I was not in the business prior to 2006, this is just a guess based on what I am told and what I read on the FHA website. Example - 6 mil black plastic in the crawl space is a rule according to most realtors and many inspectors I talk with. I don't see this requirment on the website. I see things like well ventilated, no ponding of water and 18 inch access but not 6 mil black plastic requirement. Another is no dryrot allowed. While I read on the FHA site that dryrot is not a deal breaker and that counters can have dryrot - no big thing. The three S's are pointed to as the major concern. The FHA site reads - "Examples of minor property conditions that no longer require automatic repair for existing properties include, but are not limited to:

• Missing handrails
• Cracked or damaged exit doors that are otherwise open"
Flag Sun Mar 25, 2012
Stan Furgison, , Albany, OR
Mon Mar 26, 2012
what I have forund is that if the appraiser feels that it needs to be fixed and if the P and D report states the there is damage that needs to corrected then those are the things that need to be fixed.
1 vote
Melina Tomson, Agent, Salem, OR
Sun Mar 25, 2012
I was about to say that the requirements are in the handbook. Most of it is straight forward stuff, I think. I think the issue comes into play with trying to take care of "FHA required repairs" before the appraisal. Since buyers get charged to have the appraiser come back to certify that repairs are done, I often try and get ones I know most appraisers will call out based on the HUD handbook done before then to save my buyer money. I find the disagreements I get into with agents are over those preventative repairs. Since it hasn't been called out yet, they think it doesn't have to be done.
1 vote
Gloria Rohl, Agent, Salem, OR
Sun Mar 25, 2012
Hi Dave. You have it about right. The bottom line is what the appraiser will call for as he is the Lender's eyes. If he feels there is dry rot he will asked for a qualified inspection and then he will have to approve (in a workmanlike manner) that the work was completed. If a buyer wants something done it will be a condition of the loan if it is put in an addendum. So FHA requirements will be primarily what the buyer and what the appraiser wants done. Otherwise, it is "safe, sound and sanitary".
1 vote
Thanks Gloria!!! It just seems like FHA requirements have been relaxed since 2005 and we are slow to adapt to those changes.
Flag Sun Mar 25, 2012
Tim Page, , 99037
Fri Apr 6, 2012
FHA has gotten a lot more relaxed over the years in regards to the appraisal. The biggest issue I deal with in the Northwest is the Peeling paint, pre 1978 and basic safety hazards such as a lack of railing around the deck. The Mortgagee letter 2005-ML-48 sums this up quite nicely.
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