As part of HUD, Department of Housing and Urban Development, the FHA, Federal Housing Administration, insures mortgages for lenders on qualifying home loans. It used to be that HUD would require a lender to secure a termite inspection report before approving any FHA-insured loans. HUD no longer automatically requires pest reports, but it could be beneficial to get one anyway. Who pays for termite inspections in FHA loans may depend on the extent of any visible evidence of termite damage.
Inspection vs. Appraisal
HUD does require lenders to obtain a property appraisal to estimate the property’s market value and to make certain it meets the FHA minimum property standards for health and safety. An appraisal is not the same thing as an inspection. Generally speaking, an appraisal is done for the benefit of the lender, and an inspection is done for the benefit of the buyer. The FHA recommends having an inspection done. Most likely you will pay for it, unless you can get the seller to pay as a purchase agreement condition.
Older homes often show signs of some termite damage, but typically the FHA only requires a full-blown termite inspection if the appraiser finds evidence of an active termite infestation. The FHA may require a termite inspection if it is mandated by your local or state jurisdiction, if the home is located in a TIP zone, Termite Infestation Probability zone, or if the lender requests an inspection. On its website, HUD offers a state by state listing of pest control TIP zones. Neither HUD nor the FHA will pay for termite inspections in FHA loans.
Section One vs. Section Two Repairs
Section one of a termite report includes visible evidence of an active infestation, live termites or infection -- presence of fungi or wood decay -- that is found. Evidence of a prior infestation will not be listed as section one, unless there is sufficient damage to necessitate repair. Damage encompasses any wood components that have been structurally weakened so that their intended function has been compromised. This includes wood that has been cosmetically compromised. Section two of a termite report includes any existing conditions that are deemed likely to lead to infection or an infestation. Existing conditions include, but are not limited to, excessive moisture, plumbing, roof or shower leaks and wood-to-ground contact. If the FHA appraisal reveals signs of possible infestation or infection, you may be able to negotiate for the seller to pay for a termite inspection and repair.
Who pays for a termite inspection in an FHA loan can be something you and the seller work out between the two of you. You can request a termite inspection and repair, if necessary, from the seller as a purchase agreement condition. If you do include this contingency in the agreement, you will need to obtain a termite clearance before closing the deal. If the seller does not agree to pay for an inspection or any necessary repairs, you must pay yourself, as the inspection must be completed if it has been included in the purchase agreement contract. If it is not included in the contract, the FHA will not require a termite clearance to close the loan.