Bill Requires Inspections on FHA Loans
Changes are afoot in the Federal Housing Administration (FHA)-
insured home loan program to provide more protection to home
buyers. It looks increasingly likely that either Congress or FHA
will revise the rules to require a closer inspection of the home
for concealed defects or damage, according to The Washington
Post. Under legislation pending in the House of Representatives,
a detailed, professional home inspection would be mandatory
before purchase, with a three-day "cooling-off" period during
which the buyer could refuse the deal.
The bill addresses a major concern about the FHA lending program.
Great numbers of FHA borrowers are moving into homes only to
discover hidden defects--problems that could have been revealed
by a professional home inspection. Of the 800,000 home buyers in
the program, the FHA paid insurance claims on 71,599 defaulted
homes last year. Many of those included properties needing
repairs that buyers couldn't afford.
The bill also would require inspections to adhere to standards of
the American Society of Home Inspectors. Home buyers would
select the inspector from a list of qualified trades-people
provided by FHA. Home inspection fees would be capped at $300,
and could be rolled into the mortgage.
Home inspections are frequently used by home buyers to obtain a
thorough, independent evaluation of the home's structure and
systems, prior to the sale. Buyers often include a contingency
in the sales contract that allows the seller to make any
necessary repairs prior to closing, or for the buyer to back out
The current system is nonetheless voluntary. FHA, mortgage
lenders, and real estate trade groups are lining up to oppose the
mandatory nature of the bill. In response to the bill, FHA is
currently working on new "valuation conditions" form that would
force appraisers to look for mechanical and structural defects.
That would allow home buyers to demand repairs or to hire an
inspector to make sure that repairs are done properly.