Did you know that some lenders may reject the properties you’re looking at? Special loan programs, such as those offered by the Federal Housing Administration (FHA) and the Veterans Administration (VA), are beneficial to those who qualify, but they come with specific repair requirements.

If you’re dealing with FHA or VA loans, buyers and sellers should be aware of these condition requirements. These programs have minimum property standards to ensure that the home is safe, secure, and structurally sound.

Why Are Repairs Required for FHA and VA Loans?

The rates and improved loan options offered by these loans are made possible because the FHA or VA backs the loan. They want to ensure the home they help purchase is re-salable in case the borrower defaults on the loan—so they are not going to make exceptions for repairs they consider necessary. In the end, the repairs must be completed prior to the sale for the loan to be approved.

Who is Responsible for the Repairs?

These loan programs do not stipulate whether the repairs must be made by the buyer or the seller. In most cases, the buyer will urge the seller to complete the necessary repairs, but in some situations, the buyer may need to complete repairs in order to obtain the loan.

Sellers should be cautious if a buyer switches from a conventional loan to an FHA or VA loan during the transaction. It is important to review the agreement to ensure it still makes sense once all loan conditions are met.

FHA Loan Property Condition Requirements

The FHA requires that every property financed with one of its loan products meet the following basic standards, according to the U.S. Department of Housing and Urban Development (HUD):

• Safety: The property should protect the health and safety of the residents.
• Security: The home should protect the safety of the property.
• Soundness: The property shouldn’t have any physical deficiencies that affect its structural integrity.

Here is a detailed list of common repair requirements for FHA loans:

• Non-permitted additions – additions not up to code.
• Garages converted into living spaces may not meet FHA requirements.
• Peeling paint on homes built before 1978 due to lead hazard concerns.
• Damaged rain gutters and unpainted downspouts.
• Non-operational HVAC systems, plumbing leaks, or malfunctioning exterior doors.
• Major roof issues, including leaking roofs and roofs expected to fail within three years.
• Active pest infestations.
• Structural defects or foundation issues.
• Water issues in basements or crawl spaces, including standing water.
• Bedrooms not meeting safety guidelines (e.g., windows too small for emergency exit).

VA Loan Property Condition Requirements

VA loans also have specific property condition requirements, known as Minimum Property Requirements (MPRs). These ensure that homes purchased with VA financing are safe and sanitary for veterans. Here are some common VA property condition requirements:

• The home must be accessible from a public road with an all-weather surface.
• Walls and yards must be accessible without trespassing through another property.
• Independent utilities for the property, including electricity, water, sewer/septic system.
• Safe, potable water and reliable, sanitized plumbing systems.
• Sufficient heat for the home, including secondary heat sources if necessary.
• Structural defects or foundation issues must be addressed.
• Severe plumbing leaks or non-operational utilities need repair.
• Rotting wood, drainage issues, or other safety hazards must be fixed.

Non-Permitted Additions and FHA/VA Loans

Non-permitted additions can pose significant challenges with FHA and VA loans. These programs may require that any unpermitted work be brought up to code, or they may exclude the unpermitted additions from the property’s value during appraisal. Additionally, some cities and towns impose penalties for work done without proper permits.

If you’re buying or selling a home with non-permitted additions, it’s important to understand the potential complications, especially if you’re using government-backed financing.

Who Determines If Repairs Are Needed?

For FHA and VA loans, a certified appraiser must evaluate the property to determine if it meets the loan’s property condition standards. These appraisers must be approved by the FHA or VA. They inspect the home more thoroughly than appraisers for conventional loans, as the focus is not only on market value but also on the home’s safety, security, and structural soundness.

Final Thoughts

If you’re planning to buy or sell a home using FHA or VA financing, it’s essential to understand the property condition requirements. Make sure to evaluate any necessary repairs and work with the buyer or seller to determine who will cover the costs. Doing this early can save time and prevent potential delays in closing.

Prime Choice Funding is here to assist you. If you are planning to purchase a new home or refinance your existing home, we can help with your homeownership goals. Call us at (877) 787-7463 or Click Here to Get Started.