When considering the use of the FHA 203k Program or any other Renovation Loan Program it’s important to first have a better understanding of what is referred to as Minimum Property Standards. These are items related to the overall Safety Health and Soundness of a Property, which factor into the willingness and/or ability of any Lender using a Government or Conventional Loan Program to finance your loan and the particular property.
The beauty of the Renovation Loan Programs like the FHA 203k program is that they allow these types of issues to be factored within the Renovation Budget which in turn assists in getting Lenders to “Pass” the property during the Property Approval Stage of the Loan Process.
This is how you can eliminate the phrase most mistakenly spoken amongst Real Estate Professionals when they say “This home won’t go FHA, or This Home won’t go VA.” Now, these homes can be given consideration as long as you are utilizing the correct FHA, Conventional, or VA Renovation Programs.
Standard Non-Renovation Conventional Loans are often considered amongst many Real Estate Professionals as the best alternative route for properties in “disrepair,” but in fact, they too also have mostly the exact same Safety, Health, and Soundness requirements as the Government HUD based Programs do.
You may be asking “why does this matter, and why can’t we just do the Renovations ourselves after closing if we can show we have the extra money or skill, etc?” “We only need the money to buy the house.” Interestingly enough these items are well known in the industry to be causes of loan delinquency that later lead to Foreclosure proceedings in addition to potential legal action and blame that gets bought back to lenders later by consumers.
Other indicators to look for on Purchases are properties that are listed for sale in As-Is Condition, Cash Only, or Cash & Conventional Only. You can in fact still purchase these properties with a Renovation Loan. Typically the seller or listing agent is just not fully educated about Renovation loan options or is simply refusing to accept certain financing by choice for their own reasons beyond familiarity with Renovation Loan program options or not.
Renovation mortgage minimum property standards overview
- The home should be up to date with standard building codes as well as federal guidelines in accordance with HUD requirements
- Minimum property standards, in general, must meet the minimum standards of being; Safe, Sound, and Secure
- Minimum Property Standards are meant to protect the Homeowner, Lender, and/or Guarantor
Exterior
Minimum Property Standards
Exterior
- Marketable, complete weatherproof home
- Insured home must exist as a single piece of real estate
- Home may not have a kitchen that is shared by a bedroom or bathroom; it can only be shared by open living spaces
01
Readily Accessible
Property must be accessible without trespass on an adjoining property. If the property is not directly accessible via public ways, an easement must be associated with the property
02
Safe Access
- The home must be accessible for a pedestrian or vehicle from a public or private street with an all-weather surface.
- If the access street is privately owned, it must be maintained by a homeowners association or by mutual agreement
03
Absence of Hazards
- Requires that homes be free of health and safety hazards
- This may include excessive pollution, radioactive materials, and mud flows, among other hazards
- Exposed electrical wiring, mold, or other environmental hazards
04
Full Exterior Walls
- Certain guidelines require that structures at a property line be separated from adjoining buildings, by a full-height wall.
- If the full height wall is an outer-most exterior wall, programs may require enough space between buildings in order to perform wall maintenance
05
Property Drainage
Insurable properties must be graded so that water drains away from the building and that does not pond on the property
06
Sound Construction
Requires that insured homes be free of defective construction, poor workmanship, evidence of settlement, excessive dampness, leakage, decay, termites or other conditions that impair safety, sanitation or structural soundness.
07
Roofing
- Homes must have a roof that is water-tight and shows no evidence of missing tiles, shingles or flashing
- The roof must have a minimum of 2-years expected life remaining
08
Interior
Minimum Property Standards
Interior
- Property must have adequate space for living, sleeping, cooking, and dining
- It must also have sanitary facilities including, but not limited to bathrooms with shower and/or bathtubs and commodes
01
Sanitation
- Must have a continuing supply of safe drinking water, sewage disposal, and indoor hot water
- Must have adequate heating and electricity for lighting and other equipment
02
Utilities
- Water, gas, electric, and sewer services must be independent for the property, with no reliance on another property
- In a multi-unit of 2, 3, 4-units where utilities are shared among owners, each unit must maintain a separate shut-off switch for utilities
- Common services including laundry facilities, storage space, or heating are allowed
03
Attic and Crawl Spaces
- Attic and crawl spaces must have proper natural ventilation to reduce excess heat or moisture
- Crawl spaces must be accessible and clear of debris.
Additional info can be found on the HUD website by CLICKING HERE
