We spend a lot of time thinking about mortgage lenders’ requirements for borrowers: whether you personally qualify for a loan.
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Below we describe home condition requirements for conforming mortgage loans.
In addition, rules for non-conforming conventional mortgages — like a jumbo loan — may be slightly different.
But the following home requirements will apply to the majority of conventional mortgages.
Conventional loan home requirements are pretty lenient. In-depth home inspections are typically not required. But there are a few basic property standards.
In addition, a home appraisal is typically required to verify the property’s value.
The home appraiser will look at the property’s general condition and compare it to similar, recently sold homes in the neighborhood to arrive at its current market value.
Keep in mind, a home appraiser will not inspect the home’s condition in detail looking for structural issues or defects in its systems. That’s a home inspector’s job.
With a conventional loan, lenders typically won’t require a home inspection; it’s up to the buyer whether or not to get one. But they should, and we explain why below.
Although an inspection isn’t required, lenders may have unwritten requirements about the condition of the home.
For instance, few lenders will let you purchase a home that’s clearly unsafe — unless you have thorough plans to repair the home and financing in place to do so.
In addition, conventional loan lenders may have rules regarding features like:
You can also expect issues if the home you’re planning to buy has termites or another pest infestation; contains materials with asbestos or lead-based paint; or has moisture intrusion or the presence of radon gas.
In such circumstances, you or the seller will typically have to eradicate the problem as a condition of your mortgage approval.
As a buyer or refinancing homeowner, you might hope the lender doesn’t notice an issue. Maybe you will fix it after closing. While this isn’t recommended, it’s a common occurrence. So how will the lender find out about issues?
As explained below, there’s a good chance the appraiser will note obvious deficiencies on the appraisal. That will trigger the lender to ask for an inspection by a specialist for that issue. The lender will review the specialist’s report and determine how the issue should be remedied.
The lender won’t allow the loan to close until you or the seller complete the fix.
Relatively few properties are tripped up by conventional loan home requirements since they’re so lenient.
If you want to buy somewhere especially remote or seriously out of the ordinary, your pool of willing lenders might be small.
But the vast majority of homes sail through appraisals and inspections with minimum fuss and only minor defects detected.
One of the main requirements for a conventional loan is that the home must be appraised. The appraiser’s job is to work out the property’s actual market value.
Over the years, an experienced appraiser might acquire some knowledge of construction techniques and structural issues. If they spot a major issue with the home, they may list it in their report.
Although conventional loans don’t require a home inspection, it’s in the buyer’s best interest to get one. A home inspection report can turn up valuable information that won’t show up on a home appraisal.
The only real downside of a home inspection is its cost, although home inspection fees are not astronomical.
HomeAdvisor reckons the nationwide average cost for a 2,000-square-foot home in 2020 was between $279 and $399, though bills of $500+ arose occasionally. And it suggests you add $25 for each additional 500 square feet of floor space.
For many homebuyers, that’s a small price to pay for the peace of mind such an inspection brings. Imagine spending $350 to save $10,000. That’s not an uncommon occurrence. You’ll know that the crack in an internal wall or in the foundations you noticed isn’t a sign of a serious problem. Or that it is, and you should find somewhere else to buy.
Plus, you may well be able to use your home inspection report as leverage to drive down the sale price, or to get the seller to pay for repairs before you move in.
If you do opt to get a home inspection, your first task is to pick a good inspector.
A home inspection typically covers the property’s:
It’s important to note that home inspectors can’t check every inch of the home and won’t normally dig earth, penetrate walls and ceilings, or generally access inaccessible areas.
So be realistic about your expectations. For a few hundred bucks, you can’t expect a full demolition job to track down a leaky pipe. But you can expect its consequent damp patch to be highlighted.
It’s good to talk things through with your home inspector before and after your inspection. Beforehand, describe anything that bothers you and that you’d like checked especially carefully.
For example, suppose you noticed a crack in the brickwork of the foundations. That could be a very costly fault. Or perhaps you’re concerned the wiring is dated and may not be up to code.
You can expect them to pay particular attention to these and either provide reassurance or raise the alarm. But don’t be surprised if they suggest calling in a specialist to investigate specific issues further.
Most homes (even some new ones) will have a list of defects. So go through them with your inspector to judge how serious they are.
Should you be asking $300 off the asking price to deal with some minor quibbles? Or $30,000 to have the foundations underpinned?
Your home inspector can take a lot of the worry out of the homebuying process. Yes, you’ll still have the stress of real estate agents, loan officers, paperwork, and endless questions. But your inspector can calm your biggest fear: that you’re buying a money pit.
What if you want to buy a house that doesn’t meet basic conventional loan home requirements?
Conventional loans don’t enforce many home condition requirements. But they do enforce strict guidelines about which borrowers qualify for a home loan.
Authored By: Peter Warden The Mortgage Reports EditorPeter Warden has been writing for a decade about mortgages, personal finance, credit cards, and insurance. His work has appeared across a wide range of media. He lives in a small town with his partner of 25 years.