What kind of things do they look for in an FHA inspection for a mortgage?
I have been getting so many mixed answers from realtors, mortgage companies etc.
Some have told me the inspections aren’t that strict, basically just health and safety ie. no mold, structurally sound, etc.
I have however have others told me that there must be carpet or flooring. Paint must be in good condition. Must have appliances, etc.
I am pretty handy and was planning on buying a fixer upper, nothing major but cosmetic stuff. I’m afraid I’ll wind up getting all excited, wasting money on an FHA inspection only to find out I can’t get the loan.
What exactly is a deal breaker when it comes to FHA inspections? Also, I have heard something bad on an inspection doesn’t mean you can’t get the loan, just means it has to be fixed. If the seller isn’t willing to pay or say it’s a bank propterty the buyer can get it fixed right? My question about this is why would someoen put money into fixing a house they don’t own when anything could happen such as you can’t get the mortgage but you sunk 5k into fixing this house?
What is hte 203k loan? Is it basically an assurance you will get the house providing you do the repairs with the 203k money?
I used an FHA 203k loan for my house. A 203k loan, the inspector comes into the property and does 2 things: inspects and makes a list of things you have to fix, and asks what you want to do (i.e., new windows, deck, etc qualify but are not requirements).
The inspector is a consultant for the federal HUD department. He is concerned with life safety issues. So the following items will be addressed:
1. All electric is functional and in good condition (if older, knob-and-tube, this may be a problem)
2. At least one bathroom must have functioning toilet, sink, shower.
3. Heat must work.
4. All walls must be painted. All floors must be finished (wood, carpet, tile, sheet, doesn’t matter – just no subfloor)
5. The 203k program also tries to upgrade the energy efficiency of your home and will require the replacement of all jalousie (louver) windows, new insulation, caulk, etc.
6. All walls, ceilings patched (includes basement walls being parged)
7. Railings to code on stairs
Those are the major things. Now when the inspector comes through he will develop a worksheet indicating everything you need to do as part of the 203k loan. This worksheet then assigns a cost value to these items to come to a total value. This value, plus the cost of the house, plus a contingency of 10% (15% if utilities are not on) will be your total loan cost.
Now here’s the part that’s a pain in the ass. You have six months to get this work done. HUD will want you to use a contractor. Self-help is allowed (this is what I did) but strongly discouraged and you will most likely have to fight for it. You will be inspected once a month to ensure work is being performed. As tasks are completed, you turn in receipts, etc to get reimbursed for your expenses. However: If it costs you $50 to paint (since you didn’t pay someone to do it) and the worksheet says it should take you $450 (the worksheet must be completed as if you are hiring someone to do everything), you still only get $50. The rest will come off the loan when you refinance after the work is complete, or can be applied to other unanticipated expenses.
So the inspector comes out once a month. You have to meet with him and show whats going on, show permits (yes you need permits), etc. Work cannot stop for more than 30 days. Extensions are possible but they do not need to be provided. Technically, if work stops or you go beyond 6 months, you can be foreclosed. This is why the inspection worksheet includes labor, so the mortgage company can hire someone to complete the work.
Each inspection costs $100. The initial costs are higher than a standard loan as well. Also the interest rate sucks, and you will have a higher insurance cost because you are required to carry construction insurance in case you or someone cuts off a body part/steps on a nail/falls through a floor. I paid nearly $3500/yr for this insurance (it is now less than $700)
If at all possible, do not get a 203(k) loan. If you are like me, and the house was not livable (so it cannot be financed through a traditional mortgage) and you don’t have $40,000 or $50,000 in cash sitting around to make the repairs, it is a necessity. If its truly cosmetic, I would try to avoid the hassles of the 203k loan.
I used an FHA 203k loan for my house. A 203k loan, the inspector comes into the property and does 2 things: inspects and makes a list of things you have to fix, and asks what you want to do (i.e., new windows, deck, etc qualify but are not requirements).
The inspector is a consultant for the federal HUD department. He is concerned with life safety issues. So the following items will be addressed:
1. All electric is functional and in good condition (if older, knob-and-tube, this may be a problem)
2. At least one bathroom must have functioning toilet, sink, shower.
3. Heat must work.
4. All walls must be painted. All floors must be finished (wood, carpet, tile, sheet, doesn’t matter – just no subfloor)
5. The 203k program also tries to upgrade the energy efficiency of your home and will require the replacement of all jalousie (louver) windows, new insulation, caulk, etc.
6. All walls, ceilings patched (includes basement walls being parged)
7. Railings to code on stairs
Those are the major things. Now when the inspector comes through he will develop a worksheet indicating everything you need to do as part of the 203k loan. This worksheet then assigns a cost value to these items to come to a total value. This value, plus the cost of the house, plus a contingency of 10% (15% if utilities are not on) will be your total loan cost.
Now here’s the part that’s a pain in the ass. You have six months to get this work done. HUD will want you to use a contractor. Self-help is allowed (this is what I did) but strongly discouraged and you will most likely have to fight for it. You will be inspected once a month to ensure work is being performed. As tasks are completed, you turn in receipts, etc to get reimbursed for your expenses. However: If it costs you $50 to paint (since you didn’t pay someone to do it) and the worksheet says it should take you $450 (the worksheet must be completed as if you are hiring someone to do everything), you still only get $50. The rest will come off the loan when you refinance after the work is complete, or can be applied to other unanticipated expenses.
So the inspector comes out once a month. You have to meet with him and show whats going on, show permits (yes you need permits), etc. Work cannot stop for more than 30 days. Extensions are possible but they do not need to be provided. Technically, if work stops or you go beyond 6 months, you can be foreclosed. This is why the inspection worksheet includes labor, so the mortgage company can hire someone to complete the work.
Each inspection costs $100. The initial costs are higher than a standard loan as well. Also the interest rate sucks, and you will have a higher insurance cost because you are required to carry construction insurance in case you or someone cuts off a body part/steps on a nail/falls through a floor. I paid nearly $3500/yr for this insurance (it is now less than $700)
If at all possible, do not get a 203(k) loan. If you are like me, and the house was not livable (so it cannot be financed through a traditional mortgage) and you don’t have $40,000 or $50,000 in cash sitting around to make the repairs, it is a necessity. If its truly cosmetic, I would try to avoid the hassles of the 203k loan.
References :
As a 203k Consultant, we are to make sure the home is healthy, safe and that the utilities have future utility. At the end of the day, it has to be in “move in condition” and without defect. FHA’s rules on inspections are not as strict as most would have you believe.