FHA Peeling Paint Guidelines
At first glance, peeling paint seems only an esthetic issue, a cosmetic detail (Source). However, in FHA appraisals, there are special situations to consider and specific FHA peeling paint guidelines (Source). If these guidelines are not followed, it is possible that the entire FHA loan cannot be completed (Source), even when you meet all the FHA loan requirements and you are within the established loan limits.
Peeling Paint After 1978 for FHA Loans…..And Before 1978
The Federal Housing Administration stated that a property with peeling paint identified is required to perform mandatory activities in relation to the construction year of that property.
Homes built before 1978 are considered to have lead-based paint, whereas properties constructed after 1978 do not. Therefore, chipped or peeling paint is regarded as hazardous for the health, and not an esthetic issue that simply would be nice to avoid (Source). Peeling paint identified in properties constructed prior to 1978 must undergo an abatement process in this regard, in order to fulfill the legal requirements of FHA appraisals.
HUD 4000.1, the FHA loan handbook mandates that in the cases of properties constructed before 1978, the seller is obliged to the disclosure of information known regarding paint that contains lead and hazards related to that lead-based paint before the buyer concludes the purchase of the house. HUD 4000.1 explains it like this: “If the Property was built before 1978, the seller must disclose any information known about lead-based paint and lead-based paint hazards before selling the house, in accordance with the HUD-EPA Lead Disclosure Rule (24 CFR 35, subpart A, and the identical 40 CFR 745, subpart F).”
Therefore, for FHA mortgage loan purposes, the peeling paint for properties built prior to 1978 must undergo scraping, sanding, and repainting. It includes interior and exterior property objects. Furthermore, the chips of the paint remaining in the ground must be picked up and dismissed through proper disposal. Children can ingest these chips of paint that contain lead.
THE PEELING PAINT FOR PROPERTIES BUILT PRIOR TO 1978 MUST UNDERGO SCRAPING, SANDING, AND REPAINTING. IT INCLUDES INTERIOR (GARAGE, SLEEPING QUARTERS, ETC) AND EXTERIOR PROPERTY OBJECTS (FENCES, SHED, ETC).
FURTHERMORE, THE CHIPS OF THE PAINT REMAINING IN THE GROUND MUST BE PICKED UP AND DISMISSED THROUGH A PROPER DISPOSAL.
An appraiser will not know if a property contains lead-based paint and he is not required to know that at all. The appraiser just must note in his report that he detected a surface showing signs of being peeled or chipped. He will call to remove the peeling paint to the involved parties.
Specific Cases Of Application Of FHA Peeling Paint Guidelines
- Properties built prior to 1978, even if the peeling paint was applied recently.
- Includes all structures within the surface of the real estate object. Therefore includes exterior objects such as barns, sheds, fences, etcetera.
- Applies to all surfaces, including also wood surfaces.
- FHA peeling paint guidelines apply also to VA and USDA appraisals. Likewise, they can also apply to conventional loans.
FHA peeling paint on outbuildings also count?
All exterior structures are included in these guidelines, such as sheds, storages, fences, and so on.
Waiver For Peeling Paint Issues
Now the question is if these obligations that arise from peeling paint problems can be waived through an arrangement between the contract participants. What happens in winter when it is very cold and impossible to paint until spring? The answer is right below.
Due Diligence For The Lender
There is due diligence required for the FHA lender in these cases. He has to provide the borrower a pamphlet called “Protect Your Family From Lead In Your Home”. For more precision, the FHA loan handbook is clear that in these situations, the FHA lender is obliged to ensure that the borrower of the loan, also for our purposes, the prospective buyer “…..has been provided the EPA-approved information pamphlet on identifying and controlling lead-based paint hazards.”
Furthermore, the FHA lender is also obliged to offer the buyer a period of then days “…..before becoming obligated to purchase the home to conduct a lead-based paint inspection or risk assessment to determine the presence of lead-based paint or lead-based paint hazards,”. We understand that this can be subject of waiver, however, at the state level, there is a trend noticed since 2020, to limit waivers where the borrower loses a right, in order to protect him as he is considered the weakest party in this relationship
Due Diligence For The Real Estate Agent
It is not only the lender who has to pay attention in these cases. HUD 4000.1 states that “When any agent is involved in the transaction on behalf of the seller, the sales contract includes a statement that the agent has informed the seller of the seller’s Lead Disclosure Rule obligations, the agent is aware of his duty to ensure compliance with the requirements of the Rule, and the agent has signed and dated the contract”.
Cases are very specific and should be discussed thoroughly with the loan officer. However, this article provides you a good reference to discuss with the underwriters and officers. Appraisers only detect and enter the peeling paint event they notice. Lead paint that is not peeling will not require any entry in the appraisal document.
FHA Peeling Paint Waiver
The short answer is that an FHA peeling paint waiver is possible in few circumstances, notably in winter months, and the competence for this waiver belongs to the underwriter and not to the appraiser. The reason for the limitation of the waiver is the special situation observed by legislation in these FHA mortgage loans.
Peeling paint, and also chipped paint, we refer to those built before 1978, must be completely scrapped and painted afterwards, and the appraiser must note later these repairs. There will be no closing of the loan without them, so there is in principle, no possible waiver.
Sellers are complaining frequently that they are unable to solve peeling paint issues, normally in exterior structures during winter, actually with temperatures under 35° F, so they request a waiver. This FHA peeling paint waiver should be requested to the underwriter and not to the appraiser who is not a part of the FHA mortgage loan.
The mandatory activities for the FHA appraiser are reporting the conditions of the property as related to the Minimum Property Requirements. The appraiser does not participate in any agreement between the borrower, lender or Direct Endorsement Underwriter
These Direct Endorsement Underwriters have normally at their disposal an underwriting form with many sections. There we will see many sections where some of the paragraphs may be waived. This is in practice, mostly a discretionary decision of the underwriter.
Other Possibilities Regarding Peeling Paint
What is possible also, are the two following situations, that however are not actually waivers. Let´s see them:
- The borrower accepts to fulfill the payment for the repair of the peeling paint events detected, and obtain a lower price as a compensation for the cost of the repair performed.
- As part of the sales operation, the seller will agree to execute the payment for the repairs so the loan can be finally closed.
In both aforementioned cases, the repair must take place before the closing of the loan and there is no waiver in FHA mortgage loans for the peeling paint cases.
The FHA appraisal will detect peeling paint due to the possible presence of lead, but this will happen just in the cases where the house was built before 1978. This article is very interesting in my opinion because we normally would think of peeling paint only as something cosmetic, and I explain which is the problem with peeling paint during the appraisal activities.