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Lender Loans – Property Requirements 

Brent Whalen

Each different loan type has different property requirements to qualify for a loan. It’s important to understand the specific loan requirements as well as any additional lender requirements prior to looking for homes, especially fixer-uppers.

Lenders typically require an appraisal to ensure the loan amount aligns with the property’s value. Some loan types and lenders require the appraiser to report any conditions that don’t meet these requirements.

      Note: Many people think the Home Inspector performs these inspections, however it is actually the Appraiser that reports back to the lender.

Here are (4) common loans types with an example of the requirements. 

  • VA Loan
    To qualify for a VA loan, a property must meet the VA’s Minimum Property Requirements (MPRs).

    • These requirements include:
      • Size: The property must be large enough for basic living needs, including sleeping, cooking, and dining
      • Water: The property must have a safe water supply, hot water, and a sanitary sewage system
      • Heating: The property must have a safe heating system that can keep the temperature above 50°F
      • Electricity: The property must have working electricity, and no exposed wiring
      • Roof: The property must have adequate roofing that will last for the foreseeable future
      • Accessibility: The property must be accessible from a public or private street year-round
      • Safety: The property must be free of lead-based paint, wood destroying insects, fungus, and dry rot
      • Mechanical systems: The property must have safe and usable mechanical systems
      • Drainage: The property must have proper drainage and be free from water damage
      • Attics and crawl spaces: The property must have accessible attics and crawl spaces that are properly vented 
  • VA information: https://www.benefits.va.gov/WARMS/docs/admin26/m26-07/Ch12_Minimum_Property_Requirement_NEW.pdf

 

  • FHA Loan
    To qualify for an FHA loan, a property must be safe, secure, and structurally sound. It must also meet building codes and not have any adverse conditions that could endanger the homeowner.

    • These requirements include:
      • The property must be safe, secure, and structurally sound
      • The property must meet building codes
      • The property must not have adverse conditions that could endanger the homeowner
      • Other FHA loan requirements
        • Debt-to-income ratio: A mortgage professional will use your debt-to-income ratio to determine if you qualify for an FHA loan
        • Credit score: Many FHA lenders require a credit score of at least 620
        • Down payment: FHA loans are attractive for buyers who haven’t saved up a large down payment
        • Mortgage insurance: Borrowers must pay an annual mortgage insurance premium to help protect lenders against losses
        • Income limits: Applicants must demonstrate that they have a steady income and can make their monthly payments
        • Occupancy: The borrower must intend to use the home as their primary residence
    • FHA information: https://www.chase.com/personal/mortgage/education/financing-a-home/fha-appraisal-requirements

 

  • USDA Loan
    To qualify for a USDA loan, a property must meet certain requirements, including location, condition, and intended use.

    • These requirements include:
      • Location
        • The property must be in a USDA-designated rural area.
        • The property must be the borrower’s primary residence.
      • Condition
        • The property must meet local building codes, safety, and sanitary standards.
        • The property must have basic utilities that are functioning.
        • The property must have functional heating and cooling systems.
        • The property must have direct access to a public or private street.
      • Intended use
        • The property cannot be intended for vacation, business, or rental use.
        • Properties that are too large for the borrower’s income level may be disqualified.
      • Other considerations
        • USDA loans are designed for low to moderate-income households.
        • A reasonable credit history is expected.
        • A state-licensed inspector must perform a whole house inspection.
        • USDA loans require two types of mortgage insurance: an upfront guarantee fee and an annual fee.
    • USDA information: https://www.rd.usda.gov/files/3550-1chapter05.pdf

 

  • Conventional
    Conventional loan requirements are more lenient than the previous loan types, however there are a few basic property standards.

    • These requirements include:
      • Property Type: The property must be a single-family home, multi-family dwelling (up to four units), or a condo that meets lender guidelines.
      • Condition: The property should be safe, sound, and structurally secure. Major issues like foundation problems or significant damage may need to be addressed.
      • Appraisal: A professional appraisal is required to confirm the property’s market value and ensure it aligns with the loan amount.
      • Utilities and Access: The property must have access to utilities (water, electricity, etc.) and be reachable by roads that meet local standards.
      • Zoning and Use: The property must be residential and suitable for year-round use.
    • Conventional information: https://selling-guide.fanniemae.com/sel/b4-1.3-06/property-condition-and-quality-construction-improvements