July 29, 2016
A reader asks, “I am about to put my house on the market. But now I’m starting to worry about a crack on the basement floor that has been there since I bought the house, I never worried about the crack, its due to the house settling to one side years ago. Other than that the house is structurally sound and basement is very dry. I think the house dips about 3/4 inch. Is this something that would cause an inspection to fail?”
There are several issues that can make questions like these difficult to answer. The first is to remind borrowers and sellers alike that an FHA appraisal is NOT an inspection, nor does passing the FHA appraisal process equal an FHA stamp of approval on a property that it is defect-free.
Borrowers should understand this and save money for the optional, but crucial home inspection which is a far more in-depth look at a property. FHA loan rules do not require this inspection, but borrowers should never purchase a home without paying for the optional inspection in addition to the mandatory FHA appraisal.
Another important issue is not knowing the nature of the crack mentioned in the question. Is this indicative of a foundation problem? Some other issue? Is it purely cosmetic? Foundation requirements are addressed in general in HUD 4000.1:
“The Mortgagee must confirm that all foundations will be serviceable for the life of the Mortgage and adequate to withstand all normal loads imposed.” If the appraisal shows that the foundation is not considered serviceable for the life of the mortgage, corrections may be required or the loan may be denied altogether depending on the severity of the problem.
Then there is state/local building code to contend with. FHA loan rules do not contain all state/local building codes, but these codes DO apply. FHA loan rules state that a home must be in compliance to be approved for a loan; if the FHA appraiser finds conditions that do not meet state or local code and recommends corrections, these corrections would be made as a condition of loan approval.
Basically in such cases it’s a very good idea to consult an authority on state/local code to see if a particular condition is considered in violation or not. It is very important for buyers and sellers alike to remember that FHA loan rules in HUD 4000.1 aren’t the only ones that can affect a real estate transaction if that transaction is to be paid for by an FHA mortgage.
State law, building code, and lender standards may all apply in one way or another above and beyond FHA loan rules. Yes, this can make for some complex issues when it comes to appraisals and getting a property approved for an FHA mortgage.
But these rules are often designed to protect buyers, sellers, and/or lenders. Appraisal rules are designed to insure a home has a “remaining economic life” for the duration of the home loan, among other things. A borrower who purchases a home with an FHA mortgage should have a reasonable expectation of being able to sell the property at some point. FHA minimum property standards help insure that is possible.
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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