Repair Conditions

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Chapter 1
Appraisal & Property Requirements
Page 1-22

Home Inspections

Borrowers should be encouraged to obtain a detailed home inspection of the property. Borrowers should complete sufficient research of home inspector’s qualifications and designations to ascertain that they feel comfortable with the individual they hire. HUD does not maintain lists of approved home inspectors.

Repairs and other conditions of the appraisal are to be indicated on the "Valuation Condition (VC) Sheet" found on line at HUDClips. (Legal size paper is needed to print this form.) Handbook 4150.2 provides instructions on the completion of the this form.

1. Requiring Repairs:

a. Required repairs are limited to those repairs necessary to preserve the continued marketability of the property and to protect the health and safety of the occupants. The three S’s:

1) Salability - preserve the continued marketability of the property
2) Safety - protect the health and safety of the occupants
3) Security - protect the security of the property (security for the FHA insured mortgage.)

b. Avoid unnecessary requirements because they increase housing costs without adding any basic amenities to the property.

c. While appraisers are not to add repairs beyond FHA’s guidelines, the Underwriter (Mortgagee) may add requirements as a condition of making the loan. Individual mortgagees have the right to make additional requirements they feel necessary to protect their investment. The applicant has the option of selecting another lender if they feel these requirements/conditions are excessive.

2. Poor Condition Properties: If the subject property is in such poor condition that it may be cost prohibitive or impractical to bring it up to FHA’s minimum property requirements, the appraiser should recommend Rejecting the property and:

a. Complete the appraisal on an "AS IS" basis, clearly marking the report as rejected for Section 203(b) and provide reasons for the rejection;
b. Provide a list of all major deficiencies and state that the list should not be considered all inclusive. Additional items may be required before acceptable for FHA Insurance; and
c. Provide photographs if possible.

As stated in HUD Handbook 4150.2 HUD has neither the authority nor responsibility for enforcing code. This rests with the local municipalities.

(Please see: HUD Handbook 4000.2 Rev-2, Section 2-19.)

1. All repair items required by the appraiser or underwriter must be inspected and the clearance documented. The form HUD-92564-VC states "A professionally licensed, bonded, registered engineer, licensed home inspector or appropriately registered/licensed trades person, as applicable, must provide documentation that all deficiencies have been acceptably corrected upon completion of repairs." "As applicable" has been determined to mean any individual who the lender deems to be qualified.

Professionals as defined above may use their company’s forms and letterhead to make the certifications. Appraisers and fee inspectors are to use the Compliance Inspection Report, HUD-92051. The individual signing Section II must be the person who actually performed the inspection. Section III or IV, as appropriate, is to be signed by the Direct Endorsement Underwriter.

Mortgagee Certification - When a Mortgagee Certification is used to clear minor conditions the HUD-92051 must be used.

2. Mechanical Certifications: See Heating & Electrical section of this manual.

(See section on Appraising Refinances.) All refinances require a complete appraisal with repair conditions. Although HUD does not require completion of the repairs on a streamline refinance, except lead based paint repairs, the lender may require completion of repairs. A streamline refinance may be insured with or without an appraisal. Handbook 4155.1, Rev. 4 Chapter 1, and Mortgagee Letter 96-10.

Please See: HUD Handbook 4150.2 and Mortgagee Letter 97-22.