December 24, 2015
One good question that comes our way in the comments section from time to time involves the difference between an ordinary new home purchase loan or FHA mortgage and the purchase of a fixer-upper with an FHA rehab loan. If appraisal standards for FHA loans include minimum property requirements, how can a fixer-upper be purchased with an FHA mortgage?
After all, the nature of a fixer-upper loan is that you take a property that is in need of rehab or repairs and bring it up to standards. How can a fixer upper pass an FHA appraisal?
Fortunately, this issue is addressed in HUD 4000.1, which includes the following:
“As the on-site representative for the Mortgagee, the Appraiser provides preliminary verification that a Property meets the Property Acceptability Criteria, which includes HUDs Minimum Property Requirements (MPR) and Minimum Property Standards (MPS). Minimum Property Requirements refer to general requirements that all homes insured by FHA be safe, sound, and secure.”
Furthermore, “When examination of a Property reveals noncompliance with the Property Acceptability Criteria, the Appraiser must note all repairs necessary to make the Property comply with HUDs Property Acceptability Criteria, together with the estimated cost to cure.”
If the FHA Appraiser is unable to determine, “that a Property meets HUDs MPR or MPS, the Mortgagee may obtain an inspection from a qualified Entity to make the determination. Mortgagees must use professional judgment in determining when inspections are necessary to determine that a property meets MPR or MPS.”
But when it comes to property purchased or refinanced with a HUD 203(k) rehab loan, FHA loan rules have the following provision:
“If the Mortgage is to be insured under the 203(k) program, the Mortgagee must confirm that the Property will comply with the…eligibility criteria upon completion of repairs and improvements.”
So the borrower would not be required to have said repairs completed before loan closing time, but will be required to work with the lender to establish a completion date and insure the property meets FHA loan minimum standards at that time.
Do you work in residential real estate? You should know about the free tool offered by FHA.com. It is designed especially for real estate websites; a widget that displays FHA loan limits for the counties serviced by those sites. It is simple to spend a few seconds customizing the state, counties, and widget size for the tool; you can copy the code and paste it into your website with ease. Get yours today:
http://www.fha.com/fha_loan_limits_widget
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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