FHA House Hack
Rental Property Investor · York Pa · Member since 2023 · 18 posts · 13 votes
Mortgage broker here (not licensed in Pennsylvania, so this is the general map). What you're running into is not a cautious underwriter so much as FHA itself: FHA has minimum property standards, and on an 1890 duplex the appraiser is required to flag things like chipped or peeling paint (lead-based paint rules apply to anything built before 1978), missing handrails, roof life, exposed wiring, a non-working heat source, and anything the appraiser considers a health or safety issue. Each one becomes a required repair that has to be completed and re-inspected before closing. The 'new repairs keep showing up' pattern usually means the appraiser's list is being worked through one item at a time, or a second look after the first repairs turned up more.
Before you walk from a $155k duplex renting at $1,000 a side, three things to try, in order:
Ask your lender for the full appraisal and the complete list of required repairs in writing, right now, so you are negotiating a known list instead of a moving one. Then ask the seller to complete the items or credit you for them. On a 135-year-old property, most sellers who want to close have seen this before.
Ask whether your lender will do an FHA repair escrow. It is limited (generally minor items, and often only weather-related exterior work), but it lets the file close with the repair money held back, which solves the timing problem on a lot of these.
If the list is long, ask your lender to re-quote the same purchase as a conventional 5% down on a 2-unit. Conventional appraisals are held to a 'safe, sound, structurally secure' standard rather than FHA's checklist, so the same house often appraises without a repair list. You lose the 3.5% down and pick up mortgage insurance that drops off later, which is often a good trade on an older property. A limited 203(k) is the other route if the repairs are real and you'd rather finance them than fight about them.
On the work you've already started: stop until the appraisal issues are resolved. Anything you do before closing is at your own risk on a house you don't own yet, and if a repair you did doesn't match what the appraiser wants, you've spent money and still have the condition.
And double-check that 3.7% rate. If that's an assumption of the seller's existing FHA loan, it changes the whole analysis (and explains some of the underwriting friction). If it's a quoted new-money rate, get it in writing, because it is well below the market.
This is exactly what I was going to say, it is standard FHA minimum property standards and not usually a sign the deal itself is bad. Before considering walking, I'd say get a straight answer from the lender on the full repair list and whether the seller will cover it or you can escrow for it after closing.
I’ve found that underwriters will sometimes look at one piece of the documentation at a time instead of looking at the entire property as a whole, which can unfortunately result in repair requests coming through in pieces instead of getting one complete list upfront. It’s definitely frustrating, especially when you’ve already started putting time and money into the property.
If the repairs they’re asking for aren’t extensive or costly, I probably wouldn’t let that alone be the reason to walk away from a deal, especially with a 3.7% rate. Try to get a clear understanding of exactly what still needs to be repaired and the total cost before making that decision.
It may be worth asking the lender/underwriter to confirm whether there are any other known conditions or repairs they’ll need before closing so you can hopefully avoid another round of surprises.