FHA Insured Mortgages & Minimum Habitability Standards


Small house: Eisenach, Germany

Today’s Mortgage Market and How It Has Changed

Currently, home buyers have far fewer types of mortgage products from which to choose, as compared to just two or three years ago. This reduction in choice is reflective of the increased federal regulations, which occurred soon after the subprime bust and the collapse of the housing market in 2008. These regulations resulted in the elimination of certain mortgage products, which were often designed for those with lower credit scores, or “subprime” borrowers. Additionally, many individual investors, who were funding the mortgage broker community, also left the market, as overall mortgage standards increased and the more profitable, non-standard, subprime mortgage products disappeared. Examples of such mortgage products included “no document” loans, “zero down” loans and certain interest only loans, which, in some instances, allowed the borrower to choose when his/her payments would begin to pay down or amortize the principal balance. While the “no doc” and zero down loans may have sounded great to borrowers, their cost was higher, due to the inherent higher risk born by the lender.

The Importance of FHA Insured Mortgages & Habitability Standards

Today, if your credit score isn’t near 700 and/or you don’t have the funds for a down payment equaling 20% of the purchase price; your principal option is to apply for a mortgage insured by the Federal Housing Administration. The Federal Housing Administration, generally known as “FHA”, provides mortgage insurance on loans made by FHA-approved lenders. FHA insures mortgages on single family and multifamily homes including manufactured homes and hospitals. FHA mortgage insurance provides lenders with protection against losses as the result of homeowners defaulting on their mortgage loans. The lenders bear less risk because FHA will pay a claim to the lender in the event of a homeowner’s default. Loans must meet certain requirements established by FHA to qualify for insurance. http://portal.hud.gov/hudportal/HUD?src=/program_offices/housing/

Today in many parts of the country, FHA type mortgages represent 50% or more of all mortgages underwritten. Consequently, it is important for both buyers and sellers to understand the FHA’s established minimum standards of habitability. These minimum standards are designed to insure (1) the health and safety of the occupants; (2) the structural soundness of the improvements and (3) the customary use and enjoyment of the property. While the precise guidelines can be referenced at the following link, I wanted to share the most common issues that I have experienced, during my real estate career.




Typical Issues Cited During FHA Mandated Inspections

In my experience, the most common issues revealed by FHA inspections include the following conditions.

1. Chipping, peeling or flaking paint on the interior or exterior of the home including fences, detached garages, storage sheds and any other outbuildings. In such instances, the failed paint must be removed and replaced with a fresh coat of paint. If the property was built prior to 1978, there is a possibility the inspector may require the paint be tested for lead. If so, the federal lead based paint protocols must be followed, during the paint removal process.


2. Missing or loose handrails. Stairs without handrails will be cited by most inspectors who will require them to be installed.


3. Tripping hazards outside or inside the home. Many inspectors will require uneven sidewalks or loose carpeting to be fixed.


4. Abandoned underground fuel oil tanks are often red-flagged during an FHA inspection. Typically, the inspector will require them to be removed or drained.


5. Common attic issues

A. No or inadequate ventilation by vent, window or fan.

B. Damaged structural support.

C. Damaged insulation, loose wiring or significant water damage.  


6. Common crawl space issues

A. Inadequate access. The minimum distance is 18 inches from the bottom of the floor joists to the ground.

B. Excessive dampness or pooling of water. The installation of a vapor barrier is a common requirement. In some instances the inspector may require a sump pump to be installed to keep the crawl space dry.

C. Inadequate venting.


7. Grading issues. The soil around the home must be sloped away from the house and there must not be any standing water near the home. When these requirements aren’t met, the seller may be asked to re-grade the cited areas.


8. All house systems must be functional (e.g., furnace, air conditioning, water heater, etc.)


Final Thoughts

Please keep in mind that the focus of each inspector can vary, so don’t be surprised if something other than what I have listed above is identified as an issue needing to be resolved. However, the above link to the detailed guidelines should be reviewed for a more thorough discussion of FHA inspection protocol.  

One final matter to remember is that all deficiencies cited by the inspector and agreed to by the lender’s underwriter must be repaired and re-inspected prior to the closing of the transaction.

Please feel free to offer any comments, based upon your experiences with FHA inspections. The more everyone shares, the more confident both buyers and sellers can be when confronted with these inspections. 🙂

 Photo: Flickr Creative commons by Gynti_46’s Photostream



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