August 23, 2016
A reader asks, “Theres a well shared by seven houses producing six gallons per minute for all seven houses. The well went dry and now we were told we have till December to Feb before it goes dry. Will the loan agencies finance homes at the tail end of a wells life?”
We won’t presume to speak for financial agencies or their requirements, as standards may vary from lender to lender. However, we can reference FHA home loan rules to see what is permitted. FHA loan approval depends on a variety of factors, not just a borrower’s credit report or other issues. One factor is the condition of the property itself, which is determined by an FHA appraisal.
The purpose of an FHA appraisal is to insure properties to be purchased with an FHA mortgage meet minimum standards, and to establish the fair market value of the home. In order to do that, the assigned FHA appraiser must be confident that there is “remaining economic life” in the property.
A home that cannot be sold at the end of the loan term (or at any time between purchase and the end of the loan) does not have enough remaining economic life to be feasible.
If an appraiser knows that the well in question is due to run dry, or the well does not meet FHA loan requirements, the home may not be approved for an FHA mortgage loan. The appraiser may be able to recommend corrections where feasible, but if such corrections are not possible the home will not be approved for an FHA loan.
All that being said, one feature mentioned in the reader’s question specifically disqualifies a home from being approved for an FHA mortgage: the number of properties being served by a shared well.
According to HUD 4000.1, the maximum number of homes a shared well may serve and still be approved for an FHA mortgage loan is four. Any more than four and the home would not be approved for an FHA mortgage as per page 162 of HUD 4000.1 which also states that any well serving a property to be purchased with an FHA mortgage must meet state/local health standards.
There are also flow test requirements and other issues that may affect homes served by wells, so it’s best to have a conversation with your loan officer or a real estate expert in your area to see what may be typically required of such properties.
Joe Wallace has been specializing in military and personal finance topics since 1995. His work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and a member of the Air Force Public Affairs Alumni Association. He was Managing editor for www.valoans.com for (8) years and is currently the Associate Editor for FHANewsblog.com.
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