Sewer/Septic System Loan Rules for FHA and HUD

FHA loan rules in HUD 4000.1 require a property to meet minimum appraisal requirements before a loan will be approved. Some issues cannot be fixed, but other situations may be repaired or corrected. When a property can be modified, repaired or improved to meet those standards, FHA rules allow the loan to happen with the corrections required as a condition of loan approval.

Some properties have features that can’t be realistically altered–there are homes located in areas where well water is the only source available. The existence of the well is not the major issue–if the well doesn’t meet health and safety standards (see the above “50 foot rule”, for example) the home may be considered inappropriate for an FHA mortgage.

This is also true of properties served by septic and sewage systems; loans can and do get approved for properties that have a septic tank, drain field, etc. But what are the FHA requirements for septic/sewage?

FHA rules in HUD 4000.1 state that the lender is responsible for making sure a particular property lives up to local requirements and that community sewage systems are property licensed and “adequate to service the property.” The FHA does not maintain a specific list of “approved” septic systems.

Some properties may not be connected to a public sewer system. Again, this does not automatically render the home ineligible to be purchased with a FHA-insured loan, but the rules are clear–the system must be approved locally. In general, local health requirements must be honored for a property that cannot connect to a public system and is served by an individual sewage system. That system must be working and in good repair.

“If the Property has a septic system, the Appraiser must examine it for any signs of failure or surface evidence of malfunction. If there are readily observable deficiencies, the Appraiser must require repair or further inspection.” But HUD 4000.1 also requires the lender to get, where required, a local Health Authority report on the septic system.

Any sewage system that shows evidence of failure must be inspected by the local health authority or a licensed professional sanitarian. The system must pass inspection in order for the property to be approved for an FHA mortgage loan. In cases where the property has been unoccupied for a month or more, the lender’s underwriter may decide whether or not an inspection of the system is necessary.

Sewer systems are not identical, but as long as the system is functioning properly and lives up to local codes, the FHA does not disqualify the home simply because a sewage or septic system isn’t the same as a typical suburban system in a metropolitan area. These issues are handled on a case-by-case basis.

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FHA Requirements: ( to find out more visit their website: Click HERE )