Do FHA Loans Come With a Warranty?
FHA appraisals are not inspections and should never be considered as such. Just because your home “passes” the FHA appraisal you should never assume the home is defect-free. The appraisal is not designed to catch any and all defective conditions in the home.
Furthermore, borrowers should not assume that a 10-year builder’s warranty, where present, is sufficient to cover the cost of correcting problems not detected at appraisal time. Much will depend on the actual terms and conditions in the legally binding documents you sign at closing time.
How Does the FHA Define the Ten Year Warranty?
According to HUD 4000.1, the warranty must meet the following:
“Ten-year warranty refers to an agreement between the Borrower and a plan issuer which contains warranties regarding the construction and structural integrity of the Borrower’s dwelling securing the FHA-insured Mortgage. The plan must be a HUD-accepted insured ten-year protection plan.”
Properties That Require a 10-Year Warranty for FHA Loan Approval
FHA loan rules in HUD 4000.1 state that the following property types must come with a 10-year warranty for the FHA home loan to be approved:
- Proposed Construction
- Under Construction
- Existing Less Than One Year
What Is Considered Proposed Construction?
HUD 4000.1 defines a Proposed Construction property as “a Property where no concrete or permanent material has been placed. Digging of footing is not considered permanent.”
What Is Considered Under Construction?
FHA loan rules state, “Under Construction refers to the period from the first placement of permanent material to 100 percent completion with no Certificate of Occupancy (CO) or equivalent.”
What Is Considered a Home Existing Less Than One Year?
The FHA definition for homes Existing Less than One Year refers to “a Property that is 100 percent complete and has been completed less than one year from the date of the issuance of the CO or equivalent. The Property must have never been occupied.”
In cases where the home that has existed for less than a year but has occupants, FHA loan rules identify that as an existing construction property rather than New Construction, Existing Less Than One Year. The presence of occupants is key in such cases.
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