Roy Kelley Sells Maryland Homes : FHA APPRAISAL ISSUES

FHA APPRAISAL ISSUES

FHA financing has again become a very popular form of mortgage financing and it is important for borrowers and their buyer agents to be familiar with the procedures.

Termites - A termite report is no longer required for FHA loans. However, if evidence of termites is visible, a termite report may be requested. The termite report would have to show no evidence of termites or evidence of a termite treatment should be provided to the lender. If repairs are needed, a licensed contractor would have to correct the damage. As a practical issue, since termite inspections are inexpensive, we recommend termite reports on all properties. Agents should make every effort to disclose the condition of the property to the buyer.

Mold - Mold has become a major issue and is found in many vacant properties. Mold is a common issue to be found in lender owned foreclosures (REO). With little air flow and lack of temperature control, and frequent evidence of dampness, many vacant homes end up with mold and mold remediation is necessary. If there is any evidence of mold, FHA will require a remediation certificate from a contractor. Removing mold can be a very expensive process. Due to health concerns, buyers should be made fully aware of the dangers of mold. Some of our buyer agents provide face masks for prospective buyers that are viewing vacant properties.

Leaking Roofs or Basements - If there is evidence of water damage on ceiling, walls or floors, FHA may require a roof certification that the roof if free from leaks. Basements that have evidence of leaks will need water proofing certifications from a contractor. Home buyers and their agents should anticipate these requirements when they see evidence of leaks. If they do not see the evidence, it should be discovered by the home inspector.

Health or Safety Issues - This is a very broad category. Missing steps or railings, rotted wood, broken windows, and peeling paint will need correction. Minor cosmetic issues such and old paint should not be a problem.

The buyer agent should recognize all of these issues and bring them to the attention of their home buyer clients. When properties are being sold in "as-is" condition such as short sales and REO properties, there may be no seller assistance in making the corrections. In some cases, the home buyer will need to use renovation financing to meet the FHA requirements. The Streamlined FHA 203(k) program can cover up to $35,000 in repairs and improvements. If a larger amount is needed, the regular 203(k) financing is available.

When buyers are seeking the bargains to be found in the inventory of lender owned foreclosures, it is a good idea for them to have a good understanding of renovation financing before they go out on the home search. If the buyers do not wish to use renovation financing, they should not be submitting contracts on properties that will have that need.

We represent buyer clients as their exclusive agents for home purchases in the Maryland suburbs of Washington DC, roykelley@mris.com

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