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 completely.

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.