August 2, 2011
When looking for a home to purchase with an FHA loan, some borrowers find themselves in a situation where the results of the appraisal recommend mold abatement.
Some potential borrowers challenge the mold abatement requirement–you can find many Q&A forums on real estate issues where posters have stated, “I’ve searched and did not find any documents that say that FHA requires mold to be remediated.”
FHA standards for homes to be purchased with an FHA insured mortgage loan include a requirement that the property be free from defects and conditions which could affect the health or safety of the purchaser. A borrower may not find a “chapter and verse” type statement saying “Mold abatement is required”, but the health and safety clauses built into FHA loan regulations can and do cover mold even if not specifically named.
If an FHA appraiser recommends mold abatement as a condition for approving the home for an FHA mortgage, that abatement must occur. Or, depending on the approval of the FHA or the lender, there must be proof that funds have been escrowed and a contact for that work to take place at a specific time. But there’s another aspect of such requirements many real estate buyers forget–the lender also has the discretion to require such procedures as a condition of approving the loan.
The lender has power, as spelled out in the FHA rulebook, to require such steps in order to protect the bank’s investment. Should the home need to go back on the market, a mold issue would affect the resale value of the property. In such cases the lender would be justified in requiring mold abatement as a condition of offering the loan.
Borrowers who successfully apply, purchase, and close the deal on a home only to discover a mold issue later on in the life of the property may wonder about an FHA loan or assistance in correcting the issue. While there’s no specific FHA program designed for mold abatement and/or repair, qualified home owners could apply for an FHA rehab loan to correct the issue or apply for a cash-out refinancing loan and use some of the proceeds to correct the problem.
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.
Browse by Date: