The revised handbook for FHA loans (HUD Handbook 4000.1) took effect in September 2015. That means it applies to all government-insured home loans originated in 2018. It’s the “law of the land,” so to speak.
Among other things, the new handbook explains the minimum property condition standards and requirements for homes purchased with an FHA loan. Many of these guidelines are the same as last year, with a few updates.
Here’s a quick overview of the 2018 FHA property requirements, according to HUD Handbook 4000.1.
FHA Minimum Property Requirements in 2018
In order to use an FHA loan to buy a house, the property must meet the Department of Housing and Urban Development’s minimum property criteria.
HUD is primarily concerned with the health and safety of the home buyer / future occupant. In fact, you will encounter the phrase “health and safety” several times within the new Single-Family Housing Policy Handbook.
To be eligible for FHA-insured mortgage financing, living units within the property must have the following criteria:
- A continuing and sufficient supply of safe and potable water under adequate pressure and of appropriate quality for all household uses.
- Sanitary facilities and a safe method for disposing of sewage waste. Every living unit must have at least one bathroom, which must include, at a minimum, a water closet, lavatory, and a bathtub or shower.
- Living units must have adequate space for healthful and comfortable living conditions.
- They must also have heating adequate for healthful and comfortable living conditions, along with domestic hot water.
- The property should have adequate electricity for lighting, cooking, and for mechanical equipment used in the living unit.
The list above was adapted from the aforementioned HUD handbook, which covers the minimum property criteria for FHA purchases. As you can see, these are not overly strict property requirements. They are, in fact, quite basic. The primary concern is that the home being purchased does not interfere with the health and safety of the occupant.
Elsewhere in the FHA handbook, HUD states the following:
“The Mortgagee [or mortgage lender] must confirm that the Structure of the Property will be serviceable for the life of the Mortgage. The Mortgagee must confirm that all foundations will be serviceable for the life of the Mortgage and adequate to withstand all normal loads imposed.”
In other words, if it’s a 30-year home loan, the lender must determine that the property has a reasonable chance of lasting that long. The home cannot be in a state of rapid deterioration. This kind of verification is typically done during the appraisal process.
So in a sense, the FHA-approved appraiser wears two hats. He/she must determine the market value of the home, and also that the property meets all HUD requirements for livability.
Additional Guidelines from the HUD Handbook
Here are some additional FHA property requirements and guidelines mentioned in the new HUD handbook. Note that this is an abbreviated version. For the full text, refer to HUD’s Single-Family Housing Policy Handbook.
Lenders must make sure that the home being purchased (as well as its garage or other structures) do not “encroach onto an adjacent Property, right-of-way, utility Easement, or building restriction line.”
Electric Power Lines
The Mortgagee (lender) must verify that overhead power lines do not pass directly over the home being purchased, or above related property improvements such as a swimming pool.
Access to the Home
The home must have a “safe pedestrian access” as well as sufficient “vehicular access” from a public or private street.
HUD defines home “appliances” as things like the dishwasher, oven and range, washer and dryer. They have some requirements for those as well. Basically, the appliances that will convey with the transfer of the home must be operational.
Swimming pools are permitted under current FHA property requirements, but the Mortgagee / lender must ensure that the pool complies with all local safety laws and ordinances. For instance, in some cities swimming pools are required to have a safety barrier of some kind. Such guidelines vary locally, so be sure to research your city, county and/or state ordinances. Learn more about FHA swimming pool guidelines.
The property being purchased must have a stable foundation that is expected to remain serviceable for the life of the mortgage loan and is “adequate to withstand all normal loads imposed.”
According to the 2017 HUD property requirements, the home must be free of all known environmental and safety hazards, or any other adverse conditions that would negatively affect (A) the health and safety of the occupants or (B) the structural soundness of the home.
The home must be completely free of lead-based paint, due to the well-known hazards associated with such paint. This requirement often becomes an issue in older homes (particularly those built before 1978), since they are more likely to contain lead-based paint.
This is just a quick overview of property standards and requirements for FHA loans in 2017. To learn more about this subject, you can refer to HUD Handbook 4000.1, also known as the Single-Family Housing Policy Handbook. Property criteria are discussed in Part II, Section A-3, entitled “Underwriting the Property.”
I will update this article as new updates become available.