What are FHA rules regarding wells and well water?
Q:
What are the FHA rules regarding wells and well water?
Private Well Minimum Distance Requirements for FHA Loans
Private well requirements for FHA loans
Most don’t realize that when using an FHA loan,
there are some requirements in regards to distances away from areas for
private wells. In reading the rules, you may see a well referenced as
an Individual Water System too.
This rule is often overlooked
until late in the process, so it is a good practice for a real estate
agent to reference these rules when there is a private well on the
property.
This article explains the FHA rules as referenced with Private Well Distance Requirements
If a private well is the primary source of drinking water, these minimum requirements must be met in order to obtain an FHA loan
- Minimum of 100 feet from septic tank’s drain field
- Minimum of 10 feet from any property line
- If state or local regulations require greater distances, those must be followed
BUT
FHA states that “If, however, the locality permits distance
requirements less than those prescribed by FHA, the property may be
considered eligible for a mortgage insured by FHA provided that the
lender submits evidence in the case binder that the subject property is
in compliance with the applicable local or state distance requirements
and meets the conditions stated below: Therefore waivers from the
Homeownership Centers will no longer be necessary for properties meeting
these distance requirements:”
- Domestic Well from Septic Tank Drain Field: FHA will recognize state/local distance requirements provided they do not allow for less than 75 feet of separation.
- Domestic Well from Property Line: FHA will recognize state/local distance requirements provided that the well is not within 10 feet of any roadway or the property line of other than a single-family residential property, i.e., the well cannot be within 10 feet of a commercial, industrial, or multifamily building.
How to Document the Well Distances
There are a few ways to prove the distances requirements for the private well when using an FHA loan. Whichever option is used must clearly show the distances for each mentioned above. So, you can use…
- An appraisal clearly showing the location of the private well(s) and septic systems including the distances mentioned above
- A qualified party can verify the distances such as by a survey or the local health authority
Mortgage Options That Do Not Have Well Distance Requirements
One thing to keep in mind if the property does not meet FHA
requirements is that the borrower could try another loan type. For
instance, a buyer could try for a USDA Guaranteed loan which does not
require a down payment and doesn’t have the above requirements. If one
of the buyers is a Veteran, service member, or qualified surviving
spouse, then a VA loan could provide a great option with potentially no
money down. Additionally the buyer could use a conventional mortgage
with 3 – 5% down payment as Fannie or Freddie do not have these well
requirements.
To learn more details in reference to private wells, you can read this HUD HOC Reference Guide
If you are buying a home out of the city
There is a little known rule that not many people know about. You should be aware of the Public Water Connection FHA Rule! This Public Water Connection rule can kill a closing!
Hopefully you have never been caught off-guard by this little known Public Water FHA rule. It can add a large unexpected cost to a real estate purchase!
Did you know, if a property is using a well for it’s source of
water and there is a public water connection “available” to the
property, FHA
requires that the public water connection be made to the home. If you
are buying or selling real estate in the county, this can come up more
than you would like to.
Many properties may have a well installed
forever but the county has run public water lines by the house. This
makes public water “available” and required to be connected prior to
closing. But there is a BUT!
Let’s read the FHA rule here first…
FHA Rule About Connection to Public Water
The mortgagee must confirm that a connection is made to a public or Community Water System “whenever feasible and available at a reasonable cost“.
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. Reference the FHA guideline is here
What is the Reasonable Cost Guideline for Public Water?
So did you catch that key phrase? When it is “feasible and available at a reasonable cost“. So I’m sure you want to know, what is reasonable? Well the accepted guideline to follow is if the cost to connect is
under 3% of the fair market value of the home as determined by the FHA
appraisal, it must be completed. On the contrary, if the cost to
connect is over 3%, this is considered to Not Be Feasible. 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. The appraiser adds this
cost to the appraisal so it can be reviewed by underwriting. If the
cost is over 3%, generally the requirement is waived but if it is under
3% it must be connected. Generally we have seen the buyer pay this but
often an FHA
buyer may not have the funds so then it falls on the seller if the
purchase is going to close. The other option is to change mortgage
programs to USDA or a Conventional loan for instance.
How to Prepare Up-Front for This Public Water Connection Rule
Sellers & Listing Agents:
- Get a written quote for public water connection from a licensed plumber
- Determine if it is greater than or less than 3% of the price
- Decide if the property should be connected to public water
- If no, have the quote available for buyers and buyers agents so this is known up-front
Buyers and Buyer’s Agents:
- Are you using FHA to purchase a home where this rule applies?
- Determine if properties have a potential public water connection
- Ask if the seller is going to connect to public water
- If the seller will not pay to connect, ask for a quote to see if you will be required to connect prior to closing
If you need further assistance with a property containing a well or need testing services done you can call us for more information. 772-538-0284