It may be a while since you last got a mortgage, but if you are planning to sell your home, it’s worth revisiting what lenders require. Fannie Mae, the USDA, VA, and FHA have standards that every property must fulfill to be eligible for a mortgage.
While the checklist may look intimidating, chances are your property already checks most of the boxes. However, it’s good to see what lenders are looking for before you find a buyer. That way, you can avoid roadblocks along the way.
Fannie Mae Property Standards
Fannie Mae has rules in place for its loans. Your property must check all of these boxes to be mortgage-compliant.
- Residential property that has 1-4 units
- Located in the U.S., Guam, Puerto Rico, or the U.S. Virgin Islands
- Insurable for home and flood risks
- “Safe, sound, and structurally secure”
- Utilities must meet local standards
- It must be accessible via roads that meet local standards
- Suitable for full-year use
- Every bedroom must have a window or another viable escape route
The borrower must also keep the loan within the conforming limits set by the Federal Housing Finance Agency. If your home is priced above this limit, the borrower will have to make a larger down payment.
USDA Property Standards
Your property is only eligible for a USDA mortgage loan if it is in a rural area. The USDA’s guidelines explain what constitutes a rural area.
- Has a population below 2,500 people
- Has a population between 2,500 and 10,000 people if it is “rural in character”
- Has a population between 10,000 and 20,000 if it is not contained within a Metropolitan Statistical Area and has a “serious lack of mortgage credit for lower and moderate-income families.”
The property should also range from 400 square feet to 2,000 square feet. Swimming pools, farm service buildings, and income-producing structures are prohibited for USDA loans.
The USDA also checks if your property is structurally sound. Its DDS standards prioritize these areas:
- Termites and other pests
- Plumbing, water, and sewage – the septic and well systems will be tested
- Heating and cooling
- Electrical systems
- Structural soundness
If there are any deficiencies, the seller must assume responsibility for the repairs before closing or the repairs being required after closing on the property. The loan originator will give the applicant at least 15 days to resolve any deficiencies.
Flood insurance is required if the property is within the 100-year flood plain. FEMA has granted exemptions in some areas.
VA Property Standards
VA property standards have plenty of overlap with the first two mortgage loans. These are the standards you must fulfill so VA loan borrowers can buy your property. Va is particularly picky about wood rot, termites, or mold/biological growth.
- Working electric, heating, and cooling systems
- It must be accessible via roads that meet local standards
- Paint that contains lead is prohibited
- No termites, dry rot, or fungus
- Security bars on windows must be functional if present
- Sanitary and safe sewage disposal
- Safe water and plumbing
- Properly vented and accessible attics and crawl spaces (or none)
- At least 400 square feet for a single-wide manufactured home and 700 square feet for a double-wide manufactured home
- Good roofing that prevents moisture from entering the home and has no leaks
- A bathroom and space for living, eating, sleeping, and cooking
- No exposed electrical wires
- The heater must maintain at least 50 degrees Fahrenheit
- Installed air conditioning must work
- All appliances must function as intended
- Ground floor circuit interrupters (GFCI) in rooms with water
- Must have smoke detectors in every bedroom and carbon monoxide detectors in non-sleeping areas on each level of the house
The VA will assign an appraiser for your property to ensure it’s up to standard. The seller will be required to repair any foundational issues before closing.
FHA Property Standards
FHA loans help people with credit scores as low as 500 qualify for housing. However, the program has several standards that a property must fulfill. Fha is particularly picky about peeling paint and mold/biological growth.
- Functional and safe heating, water, electrical, and cooling systems
- Well-ventilated basement and crawl space without any damage
- Bathroom appliances must work and provide hot water
- Security bars on windows must be functional if present
- No deterioration in walls, windows, or stairs
- Easily accessible via public roads
- Durable roof that has no moisture or leak problems
- Properly graded foundation with sufficient drainage
- All appliances must function as intended
- The property must be safe, secure, and structurally sound
- Ground floor circuit interrupters (GFCI) in rooms with water
- Must have smoke detectors in every bedroom and carbon monoxide detectors in non-sleeping areas on each level of the house
What Structurally Sound Means
All loan programs require structural soundness. A property must be clean and not have any of these things to be considered sound:
- Termites and other pests
- Decay
- Dry rot
- Mold
- Dampness
- Leaks
- Fungus
- Peeling paint
- Horizontal foundation cracks
- Bowing walls
- Exposed wires
- Broken windows
- Bad construction and craftsmanship
What Home Insurance Companies Consider
If your property isn’t eligible for mortgage loans, it doesn’t matter what home insurance companies require. However, an insurance company can present additional requirements outside of a mortgage lender’s checklist.
These are some of the things that insurance companies may review:
- The age of the home, roof, and various parts of the home: Some insurance companies will not insure older homes since they are more prone to structural issues in the future.
- The home’s exterior and safety features: The home’s condition, plus the accessibility of safety features like fire sprinklers and security systems, can impact your eligibility.
- The property’s location: Some home insurance companies will not work with you if you live in an area that is prone to environmental hazards.
- History of claims: It will be harder to get insurance for a property that has a lengthy history of insurance claims.
- The borrower’s insurance history: If the borrower has filed claims for other insurance policies, it may be more difficult for them to find an insurance company that wants to work with them.
Some of these factors are outside of your control. However, all mortgage lenders require that the borrower work with a home insurance company. If your home doesn’t fulfill an insurance company’s requirements, it will make it more difficult to qualify for a mortgage, even if you fulfill all of the lender’s requirements.
Navigating Property Checklists
Chances are that your property fulfills most of the items on each lending program’s checklist; if not all of them. There’s also plenty of overlap between the checklists that make them more manageable. It’s also likely that your property is built to code, but any issues there can slow down the process.
You can start by identifying which items on the checklists may present an issue. Then, you can tackle them one at a time with the right help. If you are not sure if your property is eligible, you may want to work with a professional.
If you don’t want to worry about the checklists, you can reach out to us. We make fair cash offers on homes, and you can get a free cash offer fast.