Over the course of the past 3 years, in the entire area that the West Penn Multi List covers, approximately 20% of all sales had FHA or USDA financing. In areas that are more rural in nature, this number bumps up slightly. However, when we look at these areas in the $100,000 and below range, that percentage jumps to 33%. All this to say, if you are a real estate agent servicing the market areas covered by the West Penn Multi List, FHA and USDA financing is unavoidable.
However, sadly, there are 0 hours of mandatory education to assist agents in understanding these products that buyers and sellers are agreeing to make contracts over. We hope that this short blog gives you some basic information necessary to help inform buyers and sellers so that they can make the most informed decision possible, and so that frustrations and misunderstandings are kept to a minimum.
FHA and USDA loan requirements are laid out in the HUD 4000.1 (available here: https://www.hud.gov/program_offices/housing/sfh/handbook_4000-1 | See sections: II.A.3.a,b - there are other pages, however this covers the highlights) This dictates to loan officers, investors, appraisers, underwriters and others involved in the loan process what conditions the loan/home/borrower must meet in order for the loan to be insured by one of these organization. In no uncertain terms, if any of those fail the requirements, the loan cannot be made. The loan underwriter has ultimate responsibility to ensure that these factors meet the minimum requirements. The appraiser in this scenario acts in a sense as the eyes, ears and sometimes nose of the underwriter in the home. Our report points out deficiencies in the property generally, as well as those that would disqualify the property from FHA/USDA financing.
The chipping and peeling paint that exposes the wood surfaces to the elements on homes of ANY age… will need to be painted per the HUD 4000.1 guidelines.
The leaking roof… it will need to be repaired.
The strong gas odor… will need to be inspected by a qualified professional.
We occasionally hear the complaint, “But the last appraiser didn’t make a big deal about it!?”
A couple of thoughts here:
Perhaps the last appraiser wasn’t performing a FHA/USDA appraisal. Perhaps it was a conventional loan?
Perhaps the issue wasn’t present at the last inspection?
Perhaps the appraiser missed it - in which case they could be liable for the error.
All of these aside however, for an appraiser to intentionally overlook a HUD 4000.1 deficiency just to “make the deal work,” is mortgage fraud. Period. Pressuring an appraiser to do so isn’t a great idea either.
There are some grey areas that require interpretation, and as often as possible we reach out to the appropriate body so that they will make a determination. The size of bedroom window egress is a great example. The HUD 4000.1 requires that a bedroom have direct exterior egress, however, it stops short of any specifics. What constitutes egress for a 6 foot tall man is not egress for a 4 year old girl? What size must the window be / how close does the window have to be to the floor? However, a window that is painted shut is not egress for anyone during a fire.
This gets to the point of all of these regulations. The Department of Housing and Urban Development composed the HUD 4000.1 to ensure that families buying homes with this financing would not only have a roof, but one that would last. Not just a house, but a safe home. As an agent (and as appraisers) we have close alignment in these hopes for the consumers that we come in contact with on a daily basis.
DOWNLOADABLE FILE OF THE HUD 4000.1