What if the House Needs Work? Understanding FHA Work Orders
While it is true that there are a lot of "deals" in the marketplace right now, it is also true that a lot of them are in need of repairs. Most buyers are opting for an FHA loan where only a 3.5% (of the appraised value) down payment is required. The FHA has always been stricter on property condition than conventional lenders but now is not calling for as many minor items to be repaired. The following is a list of items that are no longer automatically noted as needing to be repaired.
- Missing handrails
- Cracked or damaged exit doors that are otherwise operable
- Cracked window glass
- Defective paint surfaces in homes constructed 1978 and after
- Minor plumbing leaks, such as leaky faucets
- Rotten or warped counter tops
- Crawl space and debris and trash
- Lack of all-weather driveway surface
- Defective floor finish or covering (worn through finish, badly soiled carpeting)
- Evidence of previous (non-active) wood destroying insect organism
- Damaged plaster, sheetrock or other wall and ceiling materials in homes
- constructed after 1978
- Poor workmanship
- Trip hazards (cracked or partially heaving sidewalks, poorly installed carpeting)
The following is a list of items still required on an FHA appraisal as needing further review or attention.
- Inadequate access/egress from bedrooms to exterior of home
- Leaking or worn out roofs (if 3 or more layers of shingles on leaking or worn
- out roof, all existing shingles must be removed before re-roofing)
- Evidence of structural problems (such as foundation damage caused by
- excessive settlement)
- Defective paint surfaces in homes constructed prior to 1978
- Defective exterior paint surfaces in homes constructed after 1978 where the
- finish is otherwise unprotected
Typically, the loan will not be approved and a closing cannot take place until these items are repaired/replaced. Oftentimes, the seller or bank (if lender owned) is unwilling or unable to take care of these repairs. If the buyer also cannot or will not do these repairs, the closing will not happen and the property goes back on the market. There is an alternative: the FHA 203k loan otherwise known as a rehab loan. We will explain how this loan works next week, so please stay tuned!