{"id":3297,"date":"2016-03-19T12:58:08","date_gmt":"2016-03-19T12:58:08","guid":{"rendered":"http:\/\/teammovemortgage.com\/?p=3297"},"modified":"2020-07-13T22:33:29","modified_gmt":"2020-07-13T22:33:29","slug":"public-water-connection-fha-rule","status":"publish","type":"post","link":"https:\/\/teammovemortgage.com\/blog\/public-water-connection-fha-rule\/","title":{"rendered":"Beware of the Public Water Connection FHA Rule!"},"content":{"rendered":"

Public Water Connection little known rule that can kill a closing!<\/h1>\n

Hopefully you have never been caught off-guard by this little \"FHAknown Public Water FHA<\/strong><\/span><\/a> rule.\u00a0 It can add a large unexpected cost to a purchase!<\/h2>\n

Did you know that if a property is using a well for it’s source of water and there is a public water connection “available”\u00a0to the property, FHA<\/strong><\/span><\/a> requires that the public water connection be made to the home.\u00a0 If you are buying or selling real estate in the county, this can come up more than you would like to.\u00a0 Many properties may have a well installed forever but the county has run public water lines by the house.\u00a0 This makes public water “available” and required to be connected prior to closing.\u00a0 But there is a BUT!\u00a0 Let’s read the FHA rule here first…<\/strong><\/p>\n

FHA Rule About Connection to Public Water<\/h2>\n

The mortgagee must confirm that a connection is made to a public or Community Water System “whenever feasible and available at a reasonable cost<\/em>“.\u00a0 If connection costs to the public or community system are not reasonable, the existing onsite systems are acceptable, provided they are functioning properly and meet the requirements of the local health department.\u00a0Reference the FHA guideline is here<\/a><\/strong><\/span><\/p>\n

What is\u00a0the Reasonable Cost Guideline for Public Water?<\/h2>\n

So did you catch that key phrase?\u00a0 When it is “feasible and available at a reasonable cost<\/strong>“.\u00a0 So I’m sure you want to know, what is reasonable?\u00a0 Well the accepted\u00a0guideline to follow is if the cost to connect is\"FHA under 3% of the\u00a0fair market value of the home as determined by the FHA appraisal, it must be completed.\u00a0 On the contrary, if the cost to connect is over 3%, this is considered to\u00a0Not Be Feasible.\u00a0 When this appears on an appraisal that a public water connection is available but not being used, then an estimate from a licensed plumber or similar must be obtained and provided to the appraiser.\u00a0 The appraiser adds this cost to the appraisal so it can be reviewed by underwriting.\u00a0 If the cost is over 3%, generally the requirement is waived but if it is under 3% it must be connected.\u00a0 Generally we have seen the buyer pay this but often an FHA<\/strong><\/span><\/a> buyer may not have the funds so then it falls on the seller if the purchase is going to close.\u00a0 The other option is to change mortgage programs to USDA or a Conventional loan for instance.<\/p>\n

How to Prepare Up-Front for This Public Water Connection Rule<\/h2>\n

Sellers & Listing Agents<\/strong>:<\/p>\n