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If you're thinking about applying for an FHA home loan to purchase a house served by a septic system, you may have questions about the acceptability of the system your potential new home uses.

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Minimum Property Requirements for Septic Systems

Minimum Property Requirements for Septic Systems
August 30, 2017 - If you're thinking about applying for an FHA home loan to purchase a house served by a septic system, you may have questions about the acceptability of the system your potential new home uses.

We have published information about FHA appraisal standards for septic systems in the past, but since the advent of updated FHA loan guidelines in the form of HUD 4000.1, the FHA Single Family Mortgage Loan program handbook, we thought it best to revisit some of that advice to see what applies under the updated rules.

HUD Handbook 4940.3 lists the FHA minimum property requirements for septic, stating: "Whenever feasible, connection shall be made to a publicly owned or publicly controlled system that is adequate to serve the needs of the project." This is also echoed in HUD 4000.1, which also states:

“If connection costs to the public or community system are not reasonable, the existing onsite systems are acceptable, provided they are functioning properly and meet the requirements of the local health department.” The key to understanding FHA/HUD requirements in this area is that the system must be “acceptable to local regulatory bodies”.

Evidence of approval by such authorities for each completed system shall be submitted to the HUD Field Office." According to information found on the FHA/HUD official site, the lender is responsible for making sure a particular property lives up to local requirements and that community sewage systems are properly licensed and that said systems are "adequate" enough to service the property.

The FHA official site adds that it does not maintain a specific list of approved septic systems, so borrowers would likely need to do some homework on the system and check to see if it meets state/local standards as well as being capable of serving the property as-is.

Some borrowers may be looking to purchase a home that is not connected to the local utility system. While that in and of itself does NOT automatically mean the home cannot be approved for an FHA loan, additional steps may need to happen in order to get the loan approved.

As stated above, the FHA appraisal rules require such systems to be acceptable to the local authority. "For properties that cannot connect to a public system and are served by an individual sewage system that is acceptable to the local health authority, the system is then acceptable to HUD/FHA." HUD 4000.1 does not contain a comprehensive list of things that may or may not be acceptable to the local authority, so requests for clarification would need to be made at the local level.

If the system has not been deemed acceptable to the local authority, it may be necessary to get the approval of that authority first. Some systems fall under this rule "cesspools, mound systems, and what the FHA official site labels "individual pit privies".

If any of these septic systems lives up to state or local codes, there are no questions asked from the FHA. However, ANY sewage system that is not working properly must be inspected in order for the FHA loan to proceed.

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