FHA loans are attractive mortgage options for borrowers who may find it challenging to get approved for a conventional mortgage. The criteria required to secure an FHA loan is usually less stringent than that of a conventional loan, including minimum down payment requirements and credit scores.
But not only does the borrower have to qualify for an FHA loan, so does the property itself. Before lenders agree to extend a home loan to mortgage applicants, the property in question that is being purchased must be eligible for this type of government-backed loan.
Why Do Properties Have to Meet Specific Standards For FHA Loans?
Lenders who issue mortgages have the benefit of being able to repossess the home in case the borrower ever defaults on mortgage payments. That’s because the property itself collateralizes the loan. As such, lenders want to make sure that the home meets certain standards in order to allow them to recoup as much as they possibly can in the event of mortgage default.
Both lenders and buyers are protected as a result of specific standards that homes have to meet in order for an FHA loan to be issued.
In terms of lender protection, the home should be worth what it’s being bought for according to the current market and should be able to be sold within a reasonable amount of time in the event of repossession. In terms of the buyer, the standards that homes have to meet in order to qualify for an FHA loan protect the buyer by ensuring that the property is habitable.
In order to be eligible for an FHA loan, the subject property must be:
- Safe – There should be no health or safety issues with the home.
- Secure – The property should offer a minimum amount of security for all occupants.
- Sound – Ther property should be structurally sound without any major issues that could render it inhabitable.
The lender issuing the FHA loan will send out an appraiser to the home to make sure it meets the criteria needed for loan approval. Any issues with the home will be noted appropriately.
So, what specific standards does a home have to meet in order for the buyer to qualify for an FHA home loan?
Minimum Property Standards For FHA Loans
The following are some of the criteria that properties must meet in order for an FHA loan application to be approved:
Crawl space – The crawl space must be properly vented and void of debris, rodents, insects, and moisture issues. It should also provide enough space for adequate plumbing, ductwork, and electrical work if required.
Foundation – There must be no signs of water damage or oversized cracks. Further, the foundation must be able to withstand normal weight loads.
Attic – The attic of the home should be well-ventilated. Further, no signs of water damage, fire damage, faulty wiring, or rodent infestation can be present in this space.
Roof – The roof material and structure should be able to keep water out of the home and should be expected to have a lifespan of at least two more years. Further, the roof must not have more than three layers, or else a new roof will be required.
Water supply – There must be a public water supply or well connection to the home that provides safe drinking water. If the water does not meet water quality standards, there must be a water purification system servicing the property.
Sewage system – There must be a public, community, or off-site sewer system connection to the home.
HVAC system – The home must be adequately heated and/or cooled by a functional HVAC system.
Electricals – There must be power to all living units within the property. All wiring should be adequately installed and all electrical switches and outlets should be operational.
Plumbing – There should be a functional plumbing system that provides reasonable water pressure, hot water, functioning toilets, sinks, and showers.
Property access – There must be proper and safe access to the property from the street, which also allows for emergency vehicle access in all weather conditions.
Encroachment – There cannot be any intrusion of the subject property onto another property, and vice versa.
Built-in appliances – These must be fully operational.
Termites – There must not be any termite infestation.
Power lines – Any overhead electric lines cannot be extended directly atop the home or any water feature in the premises, such as a pool.
Flood zone – If the home is located in a designated flood zone, adequate insurance must be readily available.
Pools – Any swimming pools adhere to local regulations.
Hazards – No hazards should be present in the home, including:
- Lead-based paint
- Contaminated soil
- Close proximity to a hazardous waste site
- Oil and gas wells
- High-pressure petroleum line
- Close proximity to high-voltage power lines
Noise pollution – Whether from airplanes crossing above, heavy traffic nearby, or any other source, there must not be excessive noise present.
Does Your Home Qualify?
If the subject property meets the minimum standards in terms of safety, soundness, and security, it should qualify for an FHA loan. If not, the issues in question may be able to be rectified before the loan closes. Speak with your real estate agent and let them know that you plan to apply for an FHA loan, and they’ll help to narrow down properties that will be more likely to qualify.