According to HUD, the Federal Housing Administration insures 4.8 million single-family mortgages as well as mortgages for 13,000 multifamily buildings. These account for 16% of mortgages written this year and 20% of those for new homes. For first-time buyers, FHA standards are especially important.
But the government is stringent about which loans it will approve or insure. The FHA and HUD give property appraisers a clear list of home problems that are not acceptable, including health, safety and structural hazards.
According to HUD and an array of real-estate experts and brokers, these 10 problems may make home-loan qualification difficult — or downright impossible — for buyers, no matter what credit score they may have.
1. Leaning walls, crumbling foundations
Before the FHA will sign off on a mortgage, it requires the repair of any structural defect that, without fixing, would leave a house unmarketable.
If the subject property is in such poor condition that it may be impractical to bring it up to FHA’s minimum property requirements, the appraiser should recommend rejecting the property.
Sinking, disintegrating and otherwise failing foundations can lead to a mortgage rejection under FHA rules.
Non functioning drains or any drainage issues can also hurt you. In addition, soil issues indicated by peripheral walls leaning or collapsing can also rise as a serious problem if your house is on the side of a steep hill or valley.
2. Living near an airport runway
The loud noises of jet engines rattling a home, is not necessarily the main reason for this potential mortgage killer.
The FHA has one key condition when it comes to living near any airports or runways: There must be “evidence of acceptance (of the noise) in the market and (that) use of the dwellings is expected to continue.” In other words, the mortgage likely is acceptable if the airport isn’t planning on expanding.
Buyers must also receive a notification whether the house is a “runway zone”. When the loan-application process begins, the would-be buyer must be informed of all implications that come with living near a runway. The buyer then must sign a document acknowledging the receipt of that information. Without these in place, lenders may hesitate on making a deal.
3. A leaky roof
Whether you’re talking about its walls, floors, windows or doors, homes must be waterproof. That, of course, all begins with the roof.
The FHA, in particular, doesn’t want a roof to just block moisture, it has to last.
4. Avalanche or mudslide threat
Government lending standards frown upon homes that face a threat of any mud or landslide.
Federal housing regulations require that residential properties be free from foreseeable hazards … which may affect the health and safety of the occupants or the structural soundness of the property.
The FHA identifies rock slide areas as red or blue zones. Homes located within either color on federal housing maps are ineligible for FHA insurance and should be rejected.
5. Missing appliances
In an era thick with foreclosures, real-estate professionals may be used to going through distressed properties and seeing that stoves, dishwashers, bathtubs and mounted appliances and fixtures are missing.
In some real-estate-owned properties — homes possessed by a bank, a government agency or a government-loan insurer, typically after an unsuccessful foreclosure auction. For instance, all or some of the appliances may be missing, and there may be damage to the floor, wall or ceiling finish as a result of the removal which will back loans on these properties, if certain hurdles are cleared. Depending on the damage, the FHA advises appraisers to note those holes, cracks and gouges as “deferred maintenance” and make sure the house is devalued appropriately.
6. Unheated rooms
All rooms must have a heat source or receiving at least some source of heat source, according to FHA rules.
There are, however, a handful of geographic exceptions: homes in Hawaii and the Florida counties of Lee, Charlotte, Glades, Hendry, Palm Beach, Collier, Broward, Monroe and Miami-Dade don’t require heat if the lack of a furnace is normal for the local housing market and doesn’t hurt the property’s marketability.
7. Lava flows
Given that thousands of American homes are in the Hawaiian islands, FHA mortgage rules include the threat of hot lava in those areas.
Federal housing policies on volcanic hazards were established in 1971 and include boundaries for two specific areas on Hawaii’s big island that may be in lava’s path. The FHA will not back loans in these zones.
Zone No. 1 includes the summit areas and active parts of the rift zones of Kilauea, a volcano on the southeastern side of the island, and Mauna Loa, a volcano on the southern end of the island. Zone No. 2 includes several areas adjacent to and down-slope from the active rift zones of those two volcanoes.
8. Underground oil tanks and wells
Whether they are still operating or abandoned, fuel tanks and wells buried below a residential property could derail a mortgage loan if they are detected or noted in property records.
Tanks and wells point out that they pose potential hazards via fire, explosion and ground pollution. Therefore, no dwelling may occur closer than 300 feet from an active drilling site or 75 feet from an operating well.
9. Termites
Wood-chomping bugs can eat through walls, ceilings and can have a major impact on a home’s chances of qualifying for a mortgage, real-estate experts say.
Termites can cause serious problems in the wood structural components of a house and may go undetected for a long period of time. However, the agency requires inspection only if there is evidence of “active infestation.”
FHA designated two termite infestation probability zones.
The first — a “very heavy” termite infestation — includes Alabama, Florida, Georgia, Mississippi, South Carolina and Puerto Rico. The second, classified as having “moderate to heavy” termite activity, includes Illinois, Indiana, Kentucky, North Carolina and Tennessee.
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