FHA and Cosmetic Improvements

Many homes are purchased with FHA financing, and unless you’re buying a brand new home, there’s likely some cosmetic issues that need to be fixed…sometime.  What does FHA say about these minor issues, commonly referred to as deferred maintenance?  Keep reading and find out!

But first, let’s briefly define what we’re talking about.  When you hear deferred maintenance or cosmetic improvements, what is generally meant by these terms are deficiencies that at some point will likely need to be addressed – but likely not right now.  Think small improvements that you made to your last home right before you sold it. Paint touchups. Small plumbing repairs. Landscaping.  Cleanup. You get the point. They’re called deferred because you put it off until you really need to fix them (i.e. you’re selling your home!).

This is a difficult issue to find information on because it’s not found in the HUD 4000.1 Handbook.  For this post, we consulted Mortgagee Letter 2005-ML-48, a link to which is found here.

Fifteen years ago, FHA was concerned with every little broken glass, and minor leaks, etc, etc.  Thankfully, as of December 19, 2005, when this Mortgagee Letter was issued, they stated that FHA “now only requires repairs for those property conditions that rise above the level of cosmetic defects, minor defects or normal wear and tear.”  

This letter also reminded us that professional judgment should be used in determining when a property condition ‘poses a threat to the safety of an occupant and/or jeopardizes the soundness and structural integrity of the property, such that additional inspections and/or repairs are necessary.’  What this means is that even though FHA isn’t concerned with missing handrails – to pick a hot topic – if the appraiser or lender determines the missing handrails do pose a threat to the safety of an occupant, then the handrails need to be repaired.

Per the above referenced Mortgagee Letter, examples of minor property conditions that do not require automatic repair include (but are not limited to):

• Missing handrails
• Cracked or damaged exit doors that are otherwise operable
• Cracked window glass
• Defective paint surfaces in homes constructed post-1978
• Minor plumbing leaks (such as leaky faucets)
• Defective floor finish or covering (worn through the finish, badly soiled carpeting)
• Evidence of previous (non-active) Wood Destroying Insect / Organism damage where there is no evidence of unrepaired structural damage
• Rotten or worn out countertops
• Damaged plaster, sheetrock or other wall and ceiling materials in homes constructed post-1978
• Poor workmanship
• Trip hazards (cracked or partially heaving sidewalks, poorly installed carpeting)
• Crawl space with debris and trash
• Lack of an all-weather driveway surface

Examples of property conditions that may represent a risk to the health and safety of the occupants or the soundness of the property for which FHA will continue to require automatic repair for existing properties include, but are not limited to:

• Inadequate access/egress from bedrooms to exterior of the home
• Leaking or worn out roofs (if 3 or more layers of shingles on leaking or worn out roof, all existing shingles must be removed before re-roofing)
• Evidence of structural problems (such as foundation damage caused by excessive settlement)
• Defective paint surfaces in homes constructed pre-1978
• Defective exterior paint surfaces in homes constructed post-1978 where the finish is otherwise unprotected.

So what does all of this mean to you, as a homeowner?  If you have any of the items listed above which do not require immediate repair, there is a good chance that you’ll be ok.  The appraiser will still need to make mention of these items, but a repair may not be required.

Of course, if your home has any deficiencies that do require immediate repair, those will need to be taken care of before closing.  And, as stated before, if some of the minor deficiencies (i.e. handrails) present a safety concern, the appraiser may call for their repair.

As a rule of thumb, it is always best to consult with an appraiser before listing your home for sale so you can get in front of potential issues that may slow down the home selling process.  If you have questions, or if you’re wondering if that buckled concrete sidewalk is going to be an issue, give us a call.  We love to help!

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Helping homeowners navigate the appraisal process,

Ryan Bays, SRA, AI-RRS