If you are selling your home, there is a good chance the buyer may be considering an FHA loan. Especially due to the many benefits of an FHA loan and the fact that 25% of all mortgages today are FHA insured. Many buyers choose an FHA loan because the down-payment requirement is as low as 3.5%. Selling a home that cannot meet the requirements may result in a reduced number of potential buyers and ultimately lower the price that may be able to sell for.
As a home seller, it is a good idea to review the FHA inspection checklist referenced below and make the appropriate repairs before you put your home on the market or if you are currently remodeling, include them as part of your homes rehab. An FHA loan can be problematic for home sellers if they are not prepared.
There are some large ticket items that you may not be able to ignore. For example, if the roof is old and leaking or you have termites. These things will need to be repaired regardless as to whether you sell your home. In addition, fixing these conditions and anything else that is visible to potential home buyers will likely help you to get close to your listing price.
What will an FHA inspector look for?
The FHA inspection is done as part of the home appraisal that determines the current market value. The appraiser (and inspector) will compare the home to others that have recently sold nearby. The home will be compared to homes that have the same number of bedrooms, bathrooms and also similar property characteristics that may impact the home value such as location.
Next, the appraiser will perform a full inspection according to FHA guidelines making sure the home meets the minimum standards for an FHA approved home. The list below may not be all-inclusive as each appraiser/inspector may interpret the guidelines slightly different but these items will get you very close to meeting the requirements for an FHA inspection.
FHA Inspection Checklist
In Every Room
- Check whether the room has electricity and its condition
- Window condition (no cracks and able to be opened)
- Ceiling condition (secure, no chipping or peeling paint
- Wall condition (no major holes, no cracked, chipping, or peeling paint)
- Floor condition (solid, no major slopes or uneven spots, floor coverings intact and sanitary)
- Security (The doors and windows be locked)
- Presence of lead-based paint (ensure that there is no cracked, chipping, or peeling paint)
- Presence of mold or mildew.
Bathroom
- There must be a toilet and in good working condition with no leaks
- There must be a sink and in good working condition with no leaks
- There must be a tub or shower and in good working condition with no leaks
- There must be ventilation – can be an exhaust fan or window
Kitchen
- Stove or range with an oven in good working condition (if included in the sale)
- Refrigerator in good working condition (if included in the sale)
- Any other appliances included must be working
- Sink in good working condition and with no leaks
- Room for storage, food preparation and the serving of food
Basement
- A wet basement can cause a home to not qualify. Ensure proper drainage and keeping your basement dry will help your home to meet the FHA criteria.
Exterior of the Home
- Condition of foundation
- Condition of stairs, railings and porches (all stairs must have railings)
- Condition of roof and gutters (maximum of 3 layers on the roof)
- Condition of siding
- Condition of the chimney
- Lead paint on exterior surfaces (ensure no cracked, chipping, or peeling paint)
- Water drainage away from home. (installing gutter extenders on the downspouts will typically help with this requirement)
- Swimming pool (if applicable) must be in working order and adhere to local ordinances
Heating and Plumbing
- Heating unit is adequate and in good working condition
- If there is an A/C unit, it must work
- Water heater in good working condition (must have a tube on the blow-off valve that extends to a few inches above the floor)
- Approved water supply (city sewer or well)
- Plumbing must exist and be in good working condition (water must be turned on during the inspection)
- Sewer connection either to city sewer or an operable septic system
General Health and Safety
When the inspector is reviewing the list below, he or she will be making notes on their checklist indicating the presence of these conditions as well as any repairs that may be needed:
- Working smoke detectors in the home
- Access to home for first responders
- Fire exits (there must be adequate pathways to exit the home by window or door)
- Pest infestation (there should be no signs of live pests such as roaches)
- Garbage and debris (there should be no piles of garbage or debris on the property)
- Stairs and common hallways must be adequate and all stairs must have railings
- Interior air quality (no clear signs of mildew, mold or other strong odors)
- Site and neighborhood conditions (no nearby hazards)
- Lead-based paint owner’s certification (this is a form that I provide for you to complete when listing the home that declares if you have any knowledge of lead based paint or not)
Encroachment
No portion of the dwelling or improvement may encroach onto a neighboring property. In similar fashion, a neighbor’s structure may not encroach onto the property your property. These issues will need to be resolved before closing.
If the encroachment is a result of a fence, that fence can remain as long as it does not negatively impact the value of the home.
FHA Home Inspection for Safety
Safety is important for the FHA inspection. The inspector will look for hazards that exist on the inside and outside of the home.
The inspector will also make sure every bedroom has a window or a door to be used as a fire escape. It is important to ensure that homes The home must also have adequate access for police, fire and ambulance emergencies. Typically this is a paved or road surface that is passable in all weather conditions.
What Happens if the Home Fails the FHA Inspection?
A home doesn’t really “fail” an inspection but there may be things noted on the inspection that did not meet the requirements. The repairs and/or modifications noted by the inspector will need to be made before the loan can close. This means the current homeowner will need to make those repairs or pass on selling to an FHA buyer.
If there are repairs that cannot be made prior to closing, the lender may be able to setup an escrow account for the repairs to be made afterwards. The escrow account will include the cost to make the repairs and the borrowers labor is not considered as part of the costs.
The home must be in habitable condition excluding these repairs. Meaning, if the home needs windows fixed or some floors repaired then that is fine. However, if there is no working kitchen or bathroom for example, then the loan can not close.
With conventional loans, the buyer and seller can negotiate a reduction in price to cover the cost of repairs and the buyer can manage them on his or her own after closing. That cannot happen with an FHA loan. All repairs must to be made prior to closing with the exception of items allowed to go into escrow.
Other Types of Inspections
The FHA inspection is not the only inspection that your home may under-go as part of finding a buyer but it is a good guideline to start with. Here is some information on other inspections.
Independent Home Inspection
As part of buying your home, the buyer will choose if they would like to have an independent home inspection completed. This inspection is ordered and paid for the buyer and completed by a licensed home inspector. These inspections typically take 3-4 hours for the inspector to complete and look at absolutely every aspect of the home, down to small things such as if all of the kitchen drawers open and close properly.
Depending on the type of offer that you accepted, the buyer may be able to negotiate for repairs or terminate the agreement based on the findings of the independent inspection.
USDA Loan Inspection
Another type of loan that may be used by buyers is one insured by the USDA. These loans offer buyers 0% down so that can be an attractive option to buyers if they qualify. While many of the requirements are the same, there are a couple minor differences.
- The home must be in a qualifying rural area (in our area, the only excluded zones are around Terre Haute and Bloomington)
- There cannot be evidence of terminate or wood-boring insect damage.
- The land can’t be worth more than 30% of the homes value.
- If there is a pool, it cannot be assigned a value or calculated into the properties value.
VA Loans
The last inspection type that you may see is a VA loan. These loans are offered to active service members and veterans of the Armed Forces. These loans are insured by the VA and offer 0% down payment options to those that qualify. They can be an attractive option. Again, the appraiser is going to look for many of the same things as FHA but there can be a few minor differences.
- There cannot be evidence of terminate or wood-boring insect damage. Lenders may require a full terminate inspection of the property.
- The appraiser may check for the presence of radon.
Summary
While meeting these requirements are not required to sell you home and it can at times not be feasible to meet the requirements if you are able to easily meet them, you can greatly increase the amount of buyers that could qualify to buy your home, helping it to potentially sell faster and for a higher price. As part of a listing consultation, I will review if your home can qualify for FHA, USDA or VA loans and point out any simple repairs that can be made to ensure qualification. If you have any questions or would like to learn more, please contact me!