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The Basic Property Requirements for FHA Loans in California

FHA loans are the second most popular mortgage option California, following the standard conventional home loan. First-time home buyers, in particular, favor the FHA loan program because it allows for a down payment as low as 3.5%.

But this program also has specific property requirements for homes purchased with an FHA loan. These requirements come from the Department of Housing and Urban Development (HUD), which oversees the FHA home loan program.

When using this program to buy a house, it’s important to have realistic expectations as to the types of properties you can buy. So let’s review some of the minimum property requirements for an FHA-insured home loan.

Two Parts of the FHA Home Appraisal Process

If you buy a home in California with an FHA loan, the property will have to be appraised to determine its market value and overall condition.

The appraiser will review the home to make sure that it meets the minimum property requirements imposed by the Federal Housing Administration. For the most part, these property requirements focus on the structural soundness and safety of the property.

As it states in the official HUD handbook for FHA loans:

Minimum Property Requirements (MPR) refer to general requirements that all homes insured by FHA be safe, sound, and secure.

Safe, sound and secure. Those three words appear frequently throughout the FHA loan handbook. So they give you some idea as to what the appraiser is going to focus on when reviewing a particular property.

In California, the FHA home appraisal process typically occurs shortly after the buyer and seller have agreed on a price and signed a purchase agreement. The mortgage lender will then order an appraisal to (A) determine the market value and (B) ensure the home is safe and habitable.

Overview of Minimum Property Requirements

FHA’s minimum property requirements for California home purchases are not as strict as some people think. There’s a common misconception that the appraiser will come into the job looking for problems, with a “nitpicky” mindset.

But that’s usually not the case. As mentioned above, most of these property requirements deal with basic health and safety issues, structural soundness, and the like.

Here’s a summary of some of the minimum property requirements for California FHA loans, based on HUD Handbook 4000.1:

  • No encroachment: Neither the house nor neighboring properties can overlap onto each other’s land or important areas. Fences are okay to slightly overlap if it doesn’t hurt the property value.
  • Power lines: Overhead power lines can’t be directly above the house or pool. If they are near other improvements, a safety certification is required.
  • Access: The property needs safe pedestrian and vehicle access from a public or private street that’s properly maintained.
  • Hazards: Any hazards identified by the appraiser need to be fixed.
  • Abandoned wells: Abandoned gas/oil wells need documentation showing safe closure. Petroleum wells require a qualified engineer’s inspection and state approval.
  • Livable conditions: The house must have basic amenities like safe water, sanitary facilities, heating, hot water, electricity, and a functional kitchen. Appliances that add value should work.
  • Swimming pools: Pools must comply with local regulations.
  • Structural soundness: The house and foundation must be structurally sound and last for the duration of the mortgage.
  • Economic life: The mortgage term can’t be longer than the house’s remaining useful life. There’s an exception for certain declining areas.
  • Environmental hazards: The property should be free of environmental hazards that could affect people, its value, or its structure.
  • Lead-based paint: The house must be free of lead paint hazards.

Homes in Good Condition Usually Qualify

As you can see from the above list, FHA’s property requirements are entirely reasonable. These are things you would want to find a home.

The truth is that most properties that are in reasonably good condition can qualify for an FHA loan in California. On the other hand, properties that need a significant amount of work just to be livable typically don’t qualify for a standard FHA purchase loan.

(Side note: the Federal Housing Administration also offers a program known as the FHA 203k, which allows you to purchase and rehab a home all with one loan. With the 203k program, you can essentially roll the cost of repairs or renovations into the loan amount.)

But when it comes to a regular FHA purchase loan, fixer-upper properties that need serious work typically do not qualify for financing. So keep this in mind when house hunting. If you’re going to use an FHA loan to buy a house in California, you’ll want to focus on well-maintained properties that are in good condition.

The Property Must Serve as Your Primary Residence

In addition to the minimum property requirements mentioned above, California home buyers using FHA loans must occupy the property as their primary residence. Generally speaking, you cannot use an FHA loan to purchase a vacation home or investment property.

Here’s how the Federal Housing Administration defines a principal residence:

a dwelling where the Borrower maintains or will maintain their permanent place of abode, and which the Borrower typically occupies or will occupy for the majority of the calendar year.

In some cases, a borrower might qualify for an FHA loan to purchase a secondary residence. This would be a home they occupy in addition to the primary residence, “but less than a majority of the calendar year.” This requires special permission from the FHA.

For the most part, FHA loans are designed to help California home buyers purchase a home in good condition that will serve as their primary residence.

Mike Trejo is a Bay Area mortgage broker with 20+ years of knowledge and experience.

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