FHA Mortgage Loans Can Present Closing Challenges

In a previous post, I discussed the FHA 100% Stipulation on residential resales. After yesterday's events, I have some more goodies to share with you on the possible pitfalls of obtaining FHA Financing.

I received a call from a loan officer about a closing that was being delayed (AT BEST). Ironically, both buyer and seller are unrepresented! The buyer decides to obtain FHA financing on a home in a rural suburb of Columbia SC. For the most part, the transaction has proceeded without much drama. THEN................THE OTHER SHOE DROPS!

The property possesses a well that is used as a water source for the home. During the FHA Appraisal, the inspector discovers a public water line and makes a key determination. It is feasible for the home to be connected to public water. Hence, the following information comes from the FHA Underwriter..........

"A CONDITION HAS BEEN ADDED [for loan approval] TO VERIFY WATER CONNECTION TO SUBJECT SITE, BASED ON............THE COST TO CONNECT IS [LESS THAN $500] WHICH IS LESS THAN 1% OF THE PURCHASE PRICE (3% IS CONSIDERED FEASIBLE)."

TRANSLATION: If a subject property (without public water service) can be serviced by a Public Water District through a feasible connection, the property must be connected prior to closing.

FEASIBILITY EXAMPLE: If the home is being sold for $200,000 and the connection can be made for less than $6000, then FHA Underwriters require public water service to the home.

I know. I know. This is not a sexy or thought provoking blog post. However, this information could save you some headache early in the sales process.

I will keep you updated on the FHA Financing pitfalls as much as possible. STAY TUNED!