Every so often, I write a newsletter on a subject I think might be of interest to both real estate professionals and their clients. You can find links to them below.
As any realtor knows, complications can arise when buyers apply for government loans such as VA or FHA/HUD loans. Home inspectors do not specifically inspect for compliance with these rules, but a home inspection will usually turn up anything that might also trigger a government loan rejection. Fortunately, most of the rules that apply to these loans are fairly common-sense and ensure that buyers are moving in to homes that are safe, structurally sound, and re-sellable—all of which is in the buyers' best interest in the long run.
Not everything listed as a concern in an inspection report is necessarily a problem for loan appraisers. For example, missing handrails, cracked windows, minor plumbing leaks, and damaged sheetrock are all explicitly mentioned in the U.S. Dept. of Housing and Urban Development (HUD) minimum property requirements handbook as things that are not necessarily red flags. Asbestos siding or pipe insulation may also be acceptable, as long as it is intact and undisturbed. Likewise, radon testing is not currently required for these loans.
Below are a few things you might find in an inspection report that CAN trigger loan rejections.
-Roofs: Handbooks for FHA/HUD loans and VA loans both list similar rules for roofs. They want to see a roof that has a life expectancy of at least 5 years. A life expectancy of less than 2 years is a definite red flag. Three or more layers of shingles is also a problem, because installing a new roof without first stripping the old shingles significantly reduces the life expectancy of the roof. Even two layers may be too many if the newest layer has a life expectancy of less than 2 years. In either case, a new roof will be required.
-Lead paint: Any home built before 1978 is assumed to have lead paint. This is not a problem if the paint is maintained and intact, but if paint on an older house is chipping, peeling, or crumbling, a rejection may ensue.
-Adequate heat: if a wood stove is used as the primary source of heat, a backup system capable of providing 100% of the heating load will be required. This also applies to a solar hot water system.
-Gutters: The HUD handbook requires gutters on homes where the eaves are less than 12” (single story) or 24” (two story) deep. This is to protect the foundation from water intrusion.
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