How unpermitted additions and improvements to a home may effect financing.

General  Guide for Non-Permitted Additions/Improvements, ADUs, Swimming Pools,  and  Garage Conversions
 
The following should act as a guide for properties that have additions and/or improvements for which permits cannot be provided.   It is important to note that before applying these guidelines there must be a thorough search to determine whether or not a permit exists for the additions/improvements and, if a permit exists, it covers the improvements/additions made to the subject property.   These guidelines are from FNMA, FHA and VA.
 
The following should cover most situations however; there may be unique circumstances that may require more detailed documentation.
 
Conventional loans
 
Non-permitted additions/improvements may be allowed if the appraiser explains the steps taken to attempt verification and they meet the following criteria:
 
·          The improvements/additions were constructed in a workmanlike manner
 
·         The addition does not increase the footprint (i.e. foundation) of the original structure or does not result in a change in the number of units, (e.g. a 1 unit property is converted to 2 units). If the footprint has been expanded and the appraiser is unable to verify permits, the appraisal should be completed subject to verification of permits.
 
·         The appraiser can state that the non-permitted additions/improvements are typical for the market area
 
·         The appraisal demonstrates that the non-permitted additions/improvements are legal per zoning requirements.
 
·         Illegal or Non-permitted Accessory Dwelling Unit (ADU) – For a one- or two unit property that includes an illegal (or unpermitted) additional unit or accessory apartment (sometimes referred to as a mother-in-law, mother-daughter, granny unit) the following  will apply to determine  eligibility:
 
·          The illegal use conforms to the subject neighborhood  and to the market
·          The property  is appraised based upon its current  use
·          The borrower  qualifies for the mortgage  without  considering  any rental income from the illegal unit
 
·          The appraisal must report that the improvements represent an illegal use.
 
·          The appraisal report must demonstrate that the improvements are typical for the market through an analysis of at least 3 comparable properties that have the same illegal use.  The 3 comparable  sales used to support the improvements may be in addition  to the 3 primary  comparable  sales and the appraiser may explain the comparable  search to include contact sales versus closed sales, and may consider older sales as additional  comps with an explanation  to assist meeting  this requirement.
 
·   There is evidence of adequate hazard insurance in place that will not be jeopardized by the existence of the non-permitted addition/improvements. This will require documentation from the insurance company directly to verify this.
 
Note:   if the above documentation cannot be provided, permits will be required for the additions/improvements.

FHA Loans
 
Non-permitted additions/improvements may be allowed if the appraiser explains the steps taken to attempt verification and they meet the following criteria:
 
·         The appraiser can state that the non-permitted additions/improvements are legal per zoning requirements and comply with applicable building codes of the local jurisdiction.
 
·         The appraiser can state that the improvements were completed in a workmanlike manner and represent no health or safety issues.
 
·         There is evidence of adequate hazard insurance in place that will not be jeopardized by the existence of the non-permitted addition/improvements.  This will require documentation from the insurance company directly to verify this.
 
·          A non-permitted addition generally should not be considered in the Gross Living Area (GLA); rather,  it should be considered in a separate line item and given value based in its contributory value.
 
HUD  Specific- Garage Conversions:
 
Unpermitted garage conversions are acceptable to HUD as long as the conversion was done in a workmanlike manner and poses no health and safety issues.  Value should be reflected on the appraisal as a line item and not included in the GLA. Appraiser to verify subject property is still legal without having covered parking (some areas of the Country require all properties have adequate, covered parking).
 
NOTE – If the above documentation cannot be provided, permits will be required for the additions/improvements.
 
PERMITTED ADDITIONS/IMPROVEMENT
 
·         If there is a permitted addition/improvement and it conforms to the subject's design and appeal, qualify of construction, etc., has direct access from the interior of the dwelling, and has a permanent heat source it should be considered in the GLA section of the appraisal.
 
·         If there is a permitted additions and it does not conform to the subject's design and appeal, quality of construction, etc. and/or does not have direct access from the main dwelling, it should not be considered in the GLA section of the appraisal, however, it should be considered in a separate line item and given value per the market reaction.
 
VA Loans
 
VA has no specific requirements for non-permitted additions/improvements.  The property must meet VA's minimum property requirements as verified by the appraiser.  VA relies on the appraiser to make the determination as to whether permits are required for any additions/improvements made to the subject and would then make the appraisal "subject to" verification of permits.
 
For nonconforming or specific non-agency investor loans – guidelines for that specific investor will apply and must be followed.
 
FHA Swimming Pools
 
If the  subject property is a bank  owned property:
 
Empty pool must have a hard-cover capable of hold the weight of a child or adult.  Pool must be secured so the pool cannot be used for other purposes, such as kids using the pool for skate boarding, or riding bikes.

Appraiser must comment on the covered pool, with pictures.   Appraiser to make the comment that it is assumed the pool is in working order, but will be up to the buyer to accept the pool in as-is condition.  The Buyer will need to sign certification that the pool is being accepted in as-is condition with no warranties from the Bank, the Lender or HUD.
 
If the  property is NOT  a bank Owner Property;
 
HUD will want the pool filled, to prove the pool is in proper working condition.   HUD will also want to have a LOE from the owner explaining why the pool is empty.
 
If the  Buyer  wants to fill  the  pool in with dirt:
 
They must contact their local permitting municipality, and permit the work as required.   In most cases, the local regs will require the bottom of the pool be busted out before the pool can be filled with any material, (other than water).   If the bottom of the pool is not busted out, it poses a danger of
Become a muddy pit, or bog, and a health and safety danger, since there is no place for water to drain off naturally.
 
FNMA  also has  specific guidelines for dealing with Swimming Pools;
 
Pool securing is defined as the confirmations that all fences, lanai, and gates are intact, secured with a padlock, and are a minimum of four feet high.   When the pool cannot be satisfactorily secured, the servicer must provide a bid to repair or replace the fence/lanai/gate.
 
When a fence/lanai/gate is not present, bids to cover the pool may be submitted with photo documentation showing that the fence, lanai, or gate is not present.   In addition, the servicer must 1) provide a bid to tarp the above ground pools, or 2) provide a bid to cover with a polypropylene safety cover anchored to the pool deck for below ground pools with a deck, or 3) provide a bid to board for below ground pools without a deck.
 

 

Posted on April 29, 2014 at 3:36 pm
Mary Richards | Category: 1 level, Bainbridge, Bainbridge Island, Bremerton, Forclosure Report Kitsap County and Bainbridge Island, Hansville, Indianola, Kingston, Port Orchard, Poulsbo, Rambler, Silverdale, Uncategorized, View, Waterfront Kingston

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