Many sellers have a preconceived notion that FHA loans are a hassle. They assume that their home has to be in perfect condition in order for the FHA to approve it. Fortunately, this isn’t the case today. Yes, the FHA has rules regarding a home’s condition, but it’s not much different than what any other loan program may require. Most buyers want a home in good condition with minimal repair requirements and that’s just what the FHA wants too.
In reality, the FHA doesn’t require many repairs. As long as the home passes the FHA appraisal, which includes the FHA Minimum Property Requirements, the home should pass. Should a home not meet the MPRs, however, then repairs may be necessary.
Keep reading to learn what the FHA expects.
The Minimum Property Requirements
As we stated above, the FHA has Minimum Property Requirements. At a minimum, the home you buy must meet these requirements. To sum them up, the home must be safe, sound, and sanitary. The guidelines the FHA requires aren’t anything extraordinary. Basically, the home must:
- Have proper water drainage outside the home
- Have year-round access to the street
- Have a clean water supply
- Not have any mold, mildew, or pest damage
- Not have any lead-based paint
- Have a roof with at least 3 years left on it
- Have properly working utilities
The appraiser must also look for obvious safety or sanitation issues. For example, a missing handrail or walls with holes in them wouldn’t pass the FHA appraisal. The appraiser must make sure the home is livable the way it is, providing a safe and sound atmosphere.
If the appraiser finds things wrong with the home that violate the MPRs, then the seller may be responsible for making those repairs.
Making the Repairs
If the appraiser finds things wrong with the home, the lender will require the issues be fixed before they can approve the loan. Does this mean the seller has to make the changes? It depends.
If the seller wants to move forward with the sale, yes he or she needs to make the repairs. If the seller is unwilling, you have a few options:
- Walk away from the home
- Take a credit for the repairs and handle them yourself
In order to get a credit for the repairs, the seller must agree to pay the money for the repairs. Some sellers don’t want to be bothered with the work, but will pay for the repairs. Your lender will hold the funds in an escrow holdback account. The lender will pay the contractor that conducts the repairs after the work is satisfactorily completed.
If the repairs are extensive, though, you may want to consider renegotiating the sales price of the home with the seller. If you are able to get a lower sales price, you’ll have more money to make the repairs, assuming you still want to buy the home.
It’s important to have an inspection and/or appraisal contingency in your purchase contract to allow for you to change your mind should there be issues with the home upon inspection or appraisal.
Use Caution Paying for the Repairs Yourself
Some buyers end up agreeing to pay for the repairs themselves. They want the home badly enough that they just agree to pay the costs if the seller won’t. If the repairs are costly or extensive, this may not be the best idea. If the lender requires the work done before you can close on the loan, you are essentially repairing a home that you don’t own. If the seller backs out for some reason or something else causes the loan to fall through, you won’t get your money back. Now you’ve paid for repairs on a home that you don’t own.
Typically, the seller should cover the FHA repairs necessary for your loan to go through. If the seller isn’t willing to do so, you may have to rethink the situation. If the repairs are extensive, you should either negotiate a lower sales price or possibly walk away from the home. If you have your heart set on it, discuss the option of an escrow holdback with your lender.