FHA Septic System Rules


When purchasing a home using an FHA loan, the property mush adhere to certain rules and guidelines to be eligible financing. All loans underwritten by FHA guidelines state that all properties financed using FHA must have running water, electricity and adequate sewer facilities. There are very specific guidelines put in place when it comes to septic systems and FHA.


When it comes to using FHA financing on a property, the Department of Housing and Urban Development wants to ensure consumer’s safety and the marketability of the property. Location, for example, is one of the primary factors used in an FHA appraisal report to determine value. In many cases, septic systems are only installed in rural areas. Because it is more difficult to determine value in more rural locations due to the wide range and spectrum of housing available, it is in the best interest of the buyer and the lender to ensure that the buyer is making a purchase that is worth the investment.


The function of a septic system is to store and slowly dispose of human waste in an environmentally friendly manner, by breaking down the components of the waste over time. Typically, septic systems are installed in areas that do not have direct access to a public sewer system. The placement of a septic system is particularly important to FHA and should also be important to the buyer. The current rule of thumb for septic systems is that they cannot be installed within 50 feet of a public or private water source. The reason for this is that the septic system could leak into drinking or bathing water.


The appraiser also will validate that the septic system is in good working order. Since there are many environmental factors that can cause a septic system failure, the appraiser will evaluate the last time the system was pumped out and cleaned, evaluate current soil conditions that could affect the system later on and attempt to detect any damage to the system that could cause a failure. In the event a deficiency is found, it will be required to be fixed prior to the final sale of the property.


Many consumers and home buyers believe that a septic system is a cheap sewage disposal system. In fact, many septic systems are engineered to last at least 30 years without fault or failure. Proper maintenance to a septic system will keep it in good working order for many years, without the added cost of a monthly waste water expense in urban areas. It is also a common misconception that homes on a septic system or private sewer are not eligible for FHA financing, this is not the case in the least.


Having an FHA appraiser evaluate the engineering and condition of a septic system before a property purchase is extremely beneficial to the home buyer. If deficiencies are not noted now, there is a greater chance of something going wrong with the system or a deficiency being found when an individual tries to resell it later on. Because of the very strict guidelines put in place by FHA loan underwriters, buyers have a lot more protection than they might realize when it comes to rural properties.

Expert Insight

It is important to remember that an FHA appraisal is no substitute for an independent home inspection, especially when there are private water or sewer systems on a property. It is worth the additional investment when making a property purchase to hire a licensed inspector to do a very complete mechanical inspection of all property elements.

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