October 26, 2017
What are the property requirements for an FHA loan? There are standards listed in the FHA loan handbook, HUD 4000.1, that all buyers should know.
The ability to purchase a home with an FHA mortgage is determined by your credit rating, debt to income ratio, employment, and related factors. But the ability to purchase a specific home will also include standards for the property itself; standards which must be met by the home as-is, or brought into compliance as a condition of loan approval.
Basic FHA Loan Property Requirements: Location
According to HUD 4000.1, the home must be located within the continental United States, its’ protectorates or territories. A home is eligible to be considered for an FHA loan if it is located in one of the following areas listed on page 143:
“The Property must be located within the U.S., Puerto Rico, Guam, the Virgin Islands, the Commonwealth of the Northern Mariana Islands, or American Samoa.”
Homes located elsewhere are not eligible for consideration under the FHA loan program.
More FHA Loan Property Requirements Associated With The Home’s Location
There are some instances where homes cannot be considered for an FHA mortgage loan even if they are located in one of the areas listed above. For example, consider the FHA loan rules for properties located within certain known flood hazard areas:
“A Property is not eligible for FHA insurance if:
-a residential building and related improvements to the Property are located within SFHA Zone A, a Special Flood Zone Area, or Zone V, a Coastal Area, and insurance under the National Flood Insurance Program (NFIP) is not available in the community; or
-the improvements are, or are proposed to be, located within a Coastal Barrier Resource System (CBRS).”
Those are not the only restrictions on homes to be purchase with FHA loans, but it’s a good example of what the FHA loan program intends. And FHA mortgage loans ARE possible for some homes located in areas known for flooding or other hazards, but the appropriate insurance will be required in such areas as described in the FHA loan handbook. Lender standards and state law may also apply.
FHA Mortgage Loan Requirements: Gas Piplelines, Airports, And More
HUD 4000.1 states, “The Appraiser must identify if the Property is affected by noise and hazards of low flying aircraft because it is near an airport. The Appraiser must review airport contour maps and analyze accordingly. The Appraiser must determine and report the marketability of the Property based on this analysis.”
Note that a home is not automatically ineligible in such cases, but the lender will have to make a determination on how suitable the property might be for an FHA mortgage.
Some homes may be adjacent to high-pressure gas pipelines, oil wells, or abandoned oil wells. In all such cases the lender is required to determine how close the property is situated to these sites, and determine if the home is too close. In some cases the FHA loan rulebook states a proscribed distance, in others the lender may be required to use her best judgment.
There are also special rules for homes with overhead high voltage lines. “The Appraiser must notify the Mortgagee of the deficiency of MPR or MPS if the dwelling or related property improvements are located within an Easement or if they appear to be located within an unsafe distance of any power line or tower.” The appraiser is required to use good judgment to determine whether the overhead lines pose any kind of hazard.
As you can see, the location of the property to be purchased with an FHA mortgage plays an important part in loan approval decisions when circumstances warrant.
Bruce Reichstein has spent over three decades as an experienced FHA and VA home loan mortgage banker and underwriter where he was responsible for funding “Billions” in government backed mortgage loans. He is the Managing Editor for FHANewsblog.com where he educates homeowners on the specific guidelines for obtaining FHA guaranteed home loans.
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