December 12, 2016
A reader asks, “Im selling a house with a septic tank. The home was renovated and an addition was added, and the septic tank was opened, inspected, drainedor whatever they do to septic tanks. Since there was an addition, we had to get an inspection. A year ago the county ran sewers in the subdivision and now theres a place to connect mine if I decide to do so.
But the water bills my neighbors who connected to the sewer get now are close to triple what mine are! Would FHA really make a loan contingent upon” (hooking up to the local utility)?
There is no simple answer to questions like these because FHA requirements aren’t the only ones that need to be met; state and local ordinances, building codes, health department requirements and other localized regulations have a great deal of say in whether a property is acceptable when it is not hooked up to the local utility system.
The lender is required, for example, as a condition of maximum financing for an FHA mortgage loan, to obtain written documentation of the acceptability of wells and septic systems. From HUD 4000.1 we learn that one of the requirements of new construction homes, for example, is that the lender obtain a “…Local Health Authority well water analysis and/or septic report, where required by the local jurisdictional authority”.
For existing construction much will depend on what is considered the norm in that housing market, whether the septic system “as-is” meets health code requirements, plus the required spacing distances away from wells or other water sources, etc.
FHA loan rules provide the appraiser and the lender with a set of minimum standards, but it’s clear from a quick read of the FHA loan rulebook that local health code authority must also be satisfied along with state law and other non-FHA regulations. FHA loan rules do not override these regulations.
One of the best things a potential borrower or seller in these situations can do is to discuss the situation with a local real estate expert or even a loan officer to see what has been traditionally required in such instances-knowing what the local precedents are might give plenty of insight into what may be possible or become possible if there are pending changes to regulation or local requirements.
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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