Do Environmental Factors Matter for My Home Loan?
The environment a home is located in plays an important part in the FHA appraisal process for multiple reasons, but the first one is that the home must be habitable, safe, and retain its economic value for the duration of the mortgage loan.
That’s according to HUD 4000.1, the FHA loan handbook, which also adds that certain environmental concerns may be addressed by having the right kind of hazard insurance, but not all such concerns can be satisfied in the same way.
What does that mean?
For a start, homes located in areas prone to natural disasters may or may not be approved for an FHA mortgage depending on the severity of the potential threat. In some cases, flood insurance, or similar protection against wild fires, mudslides, or tropical storms is sufficient.
But environmental factors aren’t limited to the weather. What about noise issues? FHA home loan rules state that in the appraisal process, the proximity of a home to noise zones such as airports, local industry, or other high-noise areas is a potential problem.
FHA loan rules term these things-noise and other factors unrelated to noise-as “externalities” and they are something the FHA appraiser is specifically directed to pay attention to. From HUD 4000.1:
“Externalities refer to off-site conditions that affect a Property’s value. Externalities include heavy traffic, airport noise and hazards, special airport hazards, proximity to high pressure gas lines, Overhead Electric Power Transmission Lines and Local Distribution Lines, smoke, fumes, and other offensive or noxious odors, and stationary storage tanks.”
While all externalities are not specifically noise-related, they are all connected to environmental concerns in one way or another. So the short answer to the question at the start of this article is that, yes, environmental factors DO count when it comes to FHA home loan approval.
You can work with a realtor to rule out certain properties that you feel may have an issue that could prevent the home from being approved for the mortgage; tell the real estate agent that you don’t want a home near gas stations, airports, storage tanks, etc. You can also ask a realtor about houses that may be in traditionally flood-prone areas, where wildfires or mudslides have traditionally occurred, etc.
The bottom line here is to make the most informed decision you can about a house, its location, and the history of the area where certain environmental factors have been a concern.
Sometimes It Pays to Refinance
Don't Forget Your Closing Checklist
Monthly Payments Establish Good Credit
Do you know what's on your credit report?
Learn what your score means.