The Three S’s of FHA Inspections
FHA guidelines require that a house meet a basic level of livability before it can be approved for a loan.
These standards exist to protect the lender. The property in question serves as collateral once the buyer gets a mortgage. This means if the borrower stops making payments, the lender can foreclose on the borrower and take possession of the house. The lender will sell the house to get back as much money as possible. Minimum property requirements means that the property should be easier to sell, and command a higher price if the lender has to foreclose. Simultaneously, the borrower is more likely to stay in a home that meets these standards, because they are not burdened by expensive home repairs. FHA inspections are more involved than inspections for conventional loans, often due to Appraisers finding issues with the FHA minimal requirements and requesting items to be fixed. This means the appraiser has to come back for re-inspection after the items that failed the initial check are fixed.
This longer turn-around and additional costs to the buyer can be avoided when the agent ordering the appraisal address potential issues ahead of times.
This does not mean the home must be in complete compliance when the appraiser reviews the property, but any deficiencies found must be corrected prior to the loan closing.
When an appraiser is at a property for an FHA inspection, they have a certain checklist to use. These items (from the 4105.2 and associates documents) focus on these and are typically reported on a MPR report (minimum property repair).
The Minimum Requirements:
Safety: The home should protect the health and safety of the occupants. This requirement fails most often due to a property being built prior to 1978 and has peeling paint. Lead paint is harmful if swallowed; often times young children and animals make this mistake. Other issues that occur: high powered lines having a fall zone near the home, undesirable topography, outdated well or septic systems, missing or damaged handrails for full set of stairs exposed wiring, etc.
Security: The home should protect the security of the property. This can be failed due to no lock on back doors, or similar reasons. It is the most misunderstood of the three S’s, as it does not pertain specifically to the physical security from intruders, but the properties ability to serve as collateral for FHA insurance. Appraisers often check for locations near a major freeway or country road, railroad tracks, hazardous site or landfills, etc.
Soundness: The property should not have physical deficiencies or conditions affecting its structural integrity. This is the most difficult condition to detect. Leaks, foundation cracks, termite tunnels and holes are often looked for and require more than a simple glance at the property. Obvious physical deficiencies are going to be flagged by the appraiser.
Appraisers & Agents can look to the following for FHA Inspections: