Which are the "health and safety" issues that will have a lender deny a loan?

Asked by Betty, 90025 Wed Feb 11, 2009

I keep hearing "health and safety" from the bank (more like their health and safety), and i understand that to be missing/broken plumbing fixtures, no kitchen sink-cabinets-stove, broken tile in a shower/tub area. Would broken/ripped up tile in the kitchen or on the kitchen floor count? What if the floor is concrete slab on grade and half of its linoleum is missing?? does it depend on the appraiser or are there standards someone can point me to?
Please no solitications for helping me obtain 203K rehab loans. I'd just like to know if there is something written somewhere on the standards.

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Herman Rod, Agent, Benicia, CA
Thu Feb 12, 2009
It will depend on the type of loan you're using. On an FHA or VA loan, the appraiser is required to provide more scrutiny than on a conventional loan. I suspect you're probably talking about an FHA loan, where the appraiser must cite health and safety concerns. I know that there are guidelines they follow, but some of it is also somewhat subjective, so in the end, a lot really depends on the appraiser's personal evaluation of the property. Certain things are going to be called by every appraiser (i.e. a tarp on the roof, a clear trip hazard outside, wires hanging from the ceiling, broken windows, etc.). But other less obvious items may be called by one appraiser but passed by another.

An appraiser can also recommend certain clearances (i.e. roof, termite, plumbing, heating) if they see a condition that warrants inspection by a professional. So even though there's no tarp on the roof, if this is the only house in the neighborhood with an older roof and there are water stains on the ceiling, the appraiser's likely going to recommend a roof clearance from a licensed roofer (which essentially means put on a new roof or you don't get the loan).Similarly, if there's a wad of extension cords running across the floor suggesting that the home might not be wired to adequately to accommodate everything that's presently being powered, the appraiser may likely recommend that a licensed electrician inspect and sign off on the electrical system.

So, yes, with an FHA or VA loan, there are minimum property standards.Your lender should be able to provide these to you. Or you probably can find them on HUD's/FHA's web site. Or on the VA's web site.

Essentially, the appraiser is the lender's eyes and ears, so he/she is obligated to provide both an estimate of value and an evaluation of those conditions which could affect that value. While an FHA or VA loan definitely demands a higher level of scrutiny by the appraiser, even on a conventional loan you could still end up with appraiser-noted conditions. But these are probably going to be clear and obvious serious health & safety hazards -- things that even the casual observer would easily recognize.

Best of luck!

- Rod Herman
Web Reference:  http://homesection.com
2 votes
Sky Minor, Agent, Los Angeles, CA
Fri Apr 24, 2009
Rod's given good answers here. No way a floorless house will pass FHA/VA's underwriting and I'd be surprised if any fannie/freddie conduit underwriter would let it slide either. I'd look for a smaller portfolio lender to do the loan.
0 votes
David - Appr…, , Maricopa, AZ
Thu Feb 12, 2009
Betty - You can read the information on FHA/HUD site for Valuation Analysis - Appraisers Handbook 4150.2
Chapter 3 - Property Analysis - page 9 (pdf) refers to health and safety and Appendix D - Valuation Protocol (pdf) starting on page 2 goes into it more.
0 votes
, ,
Thu Feb 12, 2009
Hi Betty
There is not a written list or anything. It's up the appraiser and the lender (more specifically the underwriter), and the type of loan as Rod said. It's very subjective, but these days lenders are not going out of the way to make exceptions to ANYTHING that MIGHT be considered a health or safety issue. It's unfortunate, because with all of these foreclosures out there all some of those houses need is a little TLC. In essense what this creates are a lot of situations where some homes can only be sold to cash buyers.

I've seen mortgages killed over very nit-picky stuff as small as a hole in drywall or deteriorated carpet. It's frustrating, but it's part of the business these days.

Best of luck
0 votes
Herman Rod, Agent, Benicia, CA
Thu Feb 12, 2009
You're welcome. On a conventional loan, from my experience, as long as you wrote up an as-is contract, I don't think the appraiser would take issue with the flooring issues. On a regular FHA loan, yes, missing flooring would likely be an issue. But on a Fannie/Freddie loan, I doubt it. Though, yes, the best thing to do would be to contact your lender and make sure, for in the current lending landscape, underwriting guidelines seem to be changing with regularity.

The FHA 203K program has been in and out of vogue for many years (mostly out of vogue). About 6-7 years ago, local lenders in our area promoted the "new 203K" and said that many of the horror stories and delays that had plagued the program in years past had been corrected and that HUD was committed to making this a viable program. That never seemed to happen, then about a year or so ago, our local lenders started talking again about a streamlined better-than-ever 203K program (but which was now only available for owner-occupants). I haven't been involved with one since that announcement, but from your comments, if your 203K was originated in the past year or so, it sounds like nothing's changed.

Anyway, talk to your lender and your real estate agent and you should be able to get pretty clear guidance on your flooring questions.

Best of luck,
Web Reference:  http://homesection.com
0 votes
Betty, Home Buyer, 90025
Thu Feb 12, 2009
Hi Rod, thanks for your help. I'm actually thinking about a conventional loan, I've tried FHA 203K before and it was a nightmare. (from interest rate down to 203k inspectors) I'm just trying to convince the seller to give me a chance to purchase a house that is basically slab on grade and someone has already tried to pick the tile off the kitchen floor and left some grout + took the carpet off in one room where the subfloor is exposed. I will contact my bank and see if they have a list.

0 votes
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