source:
  type: guide
  id: hud-4000-1-ii-a-property-acceptability-criteria
  authority: FHA Single Family Housing Policy Handbook 4000.1, Part II — a. Property
    Acceptability Criteria (06/27/2025)
  description: FHA Single Family Housing Policy Handbook 4000.1, Part II — a. Property
    Acceptability Criteria (06/27/2025).
  coverage_tier: operative
obligations:
- id: hud-4000-1-ii-a-property-acceptability-criteria-full
  canonical_id: hud-4000-1-ii-a-property-acceptability-criteria-full
  section: FHA Single Family Housing Policy Handbook 4000.1, Part II — a. Property
    Acceptability Criteria (06/27/2025)
  type: do
  tags:
  - regulator-direct
  - fha
  - hud-handbook
  - corpus-expansion
  - tier-operative
  primary_source:
    tier: 1
    authority: FHA Single Family Housing Policy Handbook 4000.1, Part II — a. Property
      Acceptability Criteria (06/27/2025)
    source_class: hud-handbook
    source_url: https://www.hud.gov/hud-partners/single-family-handbook-4000-1
    snapshot_id: 8c03836f77f317e1
    fetched_at: '2026-05-23T00:28:40Z'
    content_hash: sha256:411430f29b13f9b54a2ebb0e6f6e7087ecd2b90d0da22eb0c8c792eaa2d7d0df
    paragraph_quote: 'a. Property Acceptability Criteria (06/27/2025) The Mortgagee
      must evaluate the appraisal and any supporting documentation to determine if
      the Property complies with HUD’s Property Acceptability Criteria. Existing and
      New Construction Properties must comply with Application of Minimum Property
      Requirements and Minimum Property Standards by Construction Status. i. Defective
      Conditions The Mortgagee must evaluate the appraisal in accordance with the
      requirements for Defective Conditions. When defective conditions exist and correction
      is not feasible, the Mortgagee must reject the Property. The Mortgagee may only
      approve a Property after the Mortgagee confirms that all defects reported by
      the Appraiser have been corrected. ii. Minimum Property Requirements and Minimum
      Property Standards As the on-site representative for the Mortgagee, the Appraiser
      provides preliminary verification that a Property meets the Property Acceptability
      Criteria, which includes HUD’s Minimum Property Requirements (MPR) and Minimum
      Property Standards (MPS). Minimum Property Requirements refer to general requirements
      that all homes insured by FHA be safe, sound, and secure. Minimum Property Standards
      refer to regulatory requirements relating to the safety, soundness, and security
      of New Construction. When the Appraiser’s observation of a Property reveals
      noncompliance with the Property Acceptability Criteria, the Appraiser must note
      all repairs necessary to make the Property comply with HUD’s Property Acceptability
      Criteria, together with the estimated cost to cure. If the Appraiser cannot
      determine that a Property meets HUD’s MPR or MPS, the Mortgagee may obtain an
      inspection from a qualified entity to make the determination. Mortgagees must
      use professional judgment in determining when inspections are necessary to determine
      that a property meets MPR or MPS. Mortgagees must also use professional judgment
      in determining when a Property condition poses a threat to the health and safety
      of the occupant and/or jeopardizes the soundness and structural integrity of
      the Property, such that additional inspections and/or repairs are necessary.
      II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT A. Title II Insured Housing
      Programs Forward Mortgages 3. Underwriting the Property Handbook 4000.1 182
      Last Revised: 11/26/2025 The Mortgagee must confirm that the Property complies
      with the following eligibility criteria. If the Mortgage is to be insured under
      the 203(k) program, the Mortgagee must confirm that the Property will comply
      with the following eligibility criteria upon completion of repairs and improvements.
      (A) Encroachment The Mortgagee must ensure the subject’s dwelling, garage, or
      other improvements do not encroach onto an adjacent Property, right-of-way,
      utility Easement, or building restriction line. The Mortgagee must also ensure
      a neighboring dwelling, garage, or other improvements do not encroach onto the
      subject Property. Encroachment by the subject or adjacent Property fences is
      acceptable provided such Encroachment does not affect the marketability of the
      subject Property. (B) Overhead Electric Power The Mortgagee must confirm that
      any Overhead Electric Power Transmission Lines do not pass directly over any
      dwelling, Structure or related property improvement, including pools. The power
      line must be relocated for a Property to be eligible for FHA-insured financing.
      The residential service drop line may not pass directly over any pool, spa or
      water feature. If the dwelling or related property improvements are located
      within the Easement area, the Mortgagee must obtain a certification from the
      appropriate utility company or local regulatory agency stating that the relationship
      between the improvements and Local Distribution Lines conforms to local standards
      and is safe. (C) Access to Property The Mortgagee must confirm that the Property
      is provided with a safe pedestrian access and Adequate Vehicular Access from
      a public or private street. Streets must either be dedicated to public use and
      maintenance, or retained as private streets protected by permanent recorded
      Easements. Private streets, including shared driveways, must be protected by
      permanent recorded Easements, ownership interest, or be owned and maintained
      by an HOA. Private streets and shared driveways do not require a joint maintenance
      agreement. (D) Onsite Hazards and Nuisances The Mortgagee must require corrective
      work to mitigate potential adverse effects from any onsite hazards or nuisances
      reported by the Appraiser. II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT
      A. Title II Insured Housing Programs Forward Mortgages 3. Underwriting the Property
      Handbook 4000.1 183 Last Revised: 11/26/2025 (E) Abandoned Gas and Oil Well
      If the Property contains any abandoned gas or oil wells, the Mortgagee must
      obtain a letter from the local jurisdiction or appropriate state agency stating
      that the subject well was permanently abandoned in a safe manner. If the Property
      contains any abandoned petroleum product wells, the Mortgagee must ensure that
      a qualified petroleum engineer has inspected the Property and assessed the risk,
      and that the appropriate state authorities have concurred on clearance recommendations.
      (F) Minimum Requirements for Living Unit The Mortgagee must confirm that each
      living unit contains: • a continuing and sufficient supply of safe and potable
      water under adequate pressure and of appropriate quality for all household uses;
      • sanitary facilities and a safe method of sewage disposal. Every living unit
      must have at least one bathroom, which must include, at a minimum, a water closet,
      lavatory, and a bathtub or shower; • space adequate for healthful and comfortable
      living conditions; • heating adequate for healthful and comfortable living conditions;
      • domestic hot water; • electricity adequate for lighting and for mechanical
      equipment used in the living unit; and • kitchen facilities adequate for the
      preparation and cooking of food. Every living unit must have at least one area
      with kitchen facilities, which must include, at a minimum, a sink with potable
      running water and a stove utility hookup. The Mortgagee must ensure that Appliances
      that are to remain and that contribute to the market value opinion are operational.
      FHA does not have a minimum size requirement for one- to four-family dwellings
      and Condominium Units. For Manufactured Housing requirements, see the Manufactured
      Housing section. (G) Swimming Pools The Mortgagee must confirm that any swimming
      pools comply with all local ordinances. (H) Structural Conditions The Mortgagee
      must confirm that the Structure of the Property will be serviceable for the
      life of the Mortgage. II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT A. Title
      II Insured Housing Programs Forward Mortgages 3. Underwriting the Property Handbook
      4000.1 184 Last Revised: 11/26/2025 The Mortgagee must confirm that all foundations
      will be serviceable for the life of the Mortgage and adequate to withstand all
      normal loads imposed. (I) Environmental The Mortgagee must confirm that the
      Property is free of all known environmental and safety hazards and adverse conditions
      that may affect the health and safety of the occupants, the Property’s ability
      to serve as collateral, and the structural soundness of the improvements. (J)
      Lead-Based Paint The Mortgagee must confirm that the Property is free of lead
      paint hazards. (K) Methamphetamine Contamination If the Mortgagee or the Appraiser
      identifies a Property as contaminated by the presence of methamphetamine (meth),
      either by its manufacture or by consumption, the Property is ineligible due
      to this environmental hazard until the Property is certified safe for habitation.
      (L) Repair Requirements The Mortgagee must determine which repairs must be made
      for a Property to be eligible for FHA-insured financing. (M) Utility Services
      If utilities are not located on Easements that have been permanently dedicated
      to the local government or appropriate public utility body, the Mortgagee must
      confirm that this information is recorded on the deed record. (N) Water Supply
      Systems (1) Public Water Supply System The Mortgagee must confirm that a connection
      is made to a public or Community Water System whenever feasible and available
      at a reasonable cost. 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.
      When a public water supply system is present, the water quality is considered
      to be safe and potable and to meet the requirements of the health authority
      with jurisdiction unless: • the Appraiser indicates deficiencies with the water
      or notifies the Mortgagee that the water is unsafe; or II. ORIGINATION THROUGH
      POST-CLOSING/ENDORSEMENT A. Title II Insured Housing Programs Forward Mortgages
      3. Underwriting the Property Handbook 4000.1 185 Last Revised: 11/26/2025 •
      the health authority with jurisdiction issues a public notice indicating that
      the water is unsafe. (2) Individual Water Supply Systems (Wells) When an Individual
      Water Supply System is present, the Mortgagee must ensure that the water quality
      meets the requirements of the health authority with jurisdiction. If there are
      no local (or state) water quality standards, then water quality must meet the
      standards set by the EPA, as presented in the National Primary Drinking Water
      regulations in 40 CFR §§ 141–142. If the subject Property has a water source
      that includes a mechanical chlorinator or is served by springs, lakes, rivers,
      sand-point wells, or artesian wells, the Property is not eligible for FHA mortgage
      insurance. (a) Requirements for Well Water Testing A well water test is required
      for, but not limited to, Properties: • that are newly constructed; • where an
      Appraiser has reported deficiencies with a well or the well water; • where water
      is reported to be unsafe or known to be unsafe; or • located in close proximity
      to dumps, landfills, industrial sites, farms (pesticides) or other sites that
      could contain hazardous wastes. All testing must be performed by a disinterested
      third party. This includes the collection and transport of the water sample
      collected at the water supply source. The sample must be collected and tested
      by the local health authority, a commercial testing laboratory, a licensed sanitary
      engineer, or other party that is acceptable to the local health authority. At
      no time will the Borrower/owner or other Interested Party collect and/or transport
      the sample. Requirements for the location of wells for FHA-insured Properties
      are located in 24 CFR § 200.926d(f)(3). The following tables provide the minimum
      distance required between wells and sources of pollution for Existing Construction:
      Individual Water Supply System for Minimum Property Requirements for Existing
      Construction* 1 Property line/10 feet 2 Septic tank/50 feet 3 Drain field/100
      feet 4 Septic tank drain field reduced to 75 feet if allowed by local authority
      II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT A. Title II Insured Housing
      Programs Forward Mortgages 3. Underwriting the Property Handbook 4000.1 186
      Last Revised: 11/26/2025 Individual Water Supply System for Minimum Property
      Requirements for Existing Construction* 5 If the subject Property line is adjacent
      to residential Property then local well distance requirements prevail. If the
      subject Property is adjacent to nonresidential Property or roadway, there needs
      to be a separation distance of at least 10 feet from the property line. * distance
      requirements of local authority prevail if greater than stated above The following
      provides the minimum requirements for water wells: Water Wells Minimum Property
      Standards for New Construction 24 CFR § 200.926d(f)(1) 1 Lead-free piping 2
      If no local chemical and bacteriological water standards, state standards apply
      3 Connection of public water whenever feasible 4 Wells must deliver a continuous
      water flow of five gallons per minute over at least a four-hour period Water
      Wells Minimum Property Requirements for Existing Construction 1 Existing wells
      must deliver a continuous water flow at a minimum of three gallons per minute
      2 No exposure to environmental contamination 3 Continuing supply of safe and
      potable water 4 Domestic hot water 5 Water quality must meet requirements of
      local jurisdiction or the EPA if no local standard (b) Required Documentation
      The Mortgagee must obtain a valid water test from the local health authority
      or a lab qualified to conduct water testing in the jurisdictional state or local
      authority. When a well test is required, the report may not be more than 180
      Days old from the Disbursement Date. (3) Shared Wells The Mortgagee must confirm
      that a Shared Well: • serves Properties that cannot feasibly be connected to
      an acceptable public or Community Water supply System; • is capable of providing
      a continuous supply of water to involved Dwelling Units so that each Existing
      Construction Property simultaneously will be assured of at least three gallons
      per minute (five gallons per minute for II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT
      A. Title II Insured Housing Programs Forward Mortgages 3. Underwriting the Property
      Handbook 4000.1 187 Last Revised: 11/26/2025 Proposed Construction) over a continuous
      four-hour period. (The well itself may have a lesser yield if pressurized storage
      is provided in an amount that will make 720 gallons of water available to each
      connected existing dwelling during a continuous four-hour period or 1,200 gallons
      of water available to each proposed dwelling during a continuous four-hour period.
      The shared well system yield must be demonstrated by a certified pumping test
      or other means acceptable to all agreeing parties.); • provides safe and potable
      water. An inspection is required under the same circumstances as an individual
      well. This may be evidenced by a letter from the health authority having jurisdiction
      or, in the absence of local health department standards, by a certified water
      quality analysis demonstrating that the well water complies with the EPA’s National
      Interim Primary Drinking Water Regulations; • has a valve on each dwelling service
      line as it leaves the well so that water may be shut off to each served dwelling
      without interrupting service to the other Properties; and • serves no more than
      four living units or Properties. (a) Requirements for Well Water Testing A well
      water test is required for, but not limited to, Properties: • that are newly
      constructed; • where an Appraiser has reported deficiencies with a well or the
      well water; • where water is reported to be unsafe or known to be unsafe; or
      • located in close proximity to dumps, landfills, industrial sites, farms (pesticides)
      or other sites that could contain hazardous wastes. All testing must be performed
      by a disinterested third party. This includes the collection and transport of
      the water sample collected at the water supply source. The sample must be collected
      and tested by the local health authority, a commercial testing laboratory, a
      licensed sanitary engineer, or other party that is acceptable to the local health
      authority. At no time will the Borrower/owner or other Interested Party collect
      and/or transport the sample. For both New and Existing Construction, the Mortgagee
      must ensure that the shared well agreement complies with the guidance provided
      in the following table. Item Provisions that must be reflected in any acceptable
      shared well agreement include the following: 1 Require that the agreement is
      binding upon signatory parties and their successors in title, recorded in local
      deed records when executed and recorded, and reflects joiner by any Mortgagee
      holding a Mortgage on any Property connected to the Shared Well. II. ORIGINATION
      THROUGH POST-CLOSING/ENDORSEMENT A. Title II Insured Housing Programs Forward
      Mortgages 3. Underwriting the Property Handbook 4000.1 188 Last Revised: 11/26/2025
      Item Provisions that must be reflected in any acceptable shared well agreement
      include the following: 2 Permit well water sampling and testing by the local
      authority at the request of any party at any time. 3 Require that corrective
      measures be implemented if testing reveals a significant water quality deficiency,
      but only with the consent of a majority of all parties. 4 Ensure continuity
      of water service to “supplied” parties if the “supplying” party has no further
      need for the shared well system. (“Supplied” parties normally should assume
      all costs for their continuing water supply.) 5 Prohibit well water usage by
      any party for other than bona fide domestic purposes. 6 Prohibit connection
      of any additional living unit to the shared well system without: • the consent
      of all parties; • the appropriate amendment of the agreement; and • compliance
      with item 3. 7 Prohibit any party from locating or relocating any element of
      an individual sewage disposal system within 75 feet (100 feet for Proposed Construction)
      of the Shared Well. 8 Establish Easements for all elements of the system, ensuring
      access and necessary working space for system operation, maintenance, improvement,
      inspection and testing. 9 Specify that no party may install landscaping or improvements
      that will impair use of the Easements. 10 Specify that any removal and replacement
      of preexisting site improvements, necessary for system operation, maintenance,
      replacement, improvement, inspection or testing, will be at the cost of their
      owner, except for costs to remove and replace common boundary fencing or walls,
      which must be shared equally between or among parties. 11 Establish the right
      of any party to act to correct an emergency in the absence of the other parties
      onsite. An emergency must be defined as failure of any shared portion of the
      system to deliver water upon demand. 12 Permit an agreement amendment to ensure
      equitable readjustment of shared costs when there may be significant changes
      in well pump energy rates or the occupancy or use of an involved Property. 13
      Require the consent of a majority of all parties upon cost sharing, except in
      emergencies, before actions are taken for system maintenance, replacement or
      improvement. 14 Require that any necessary replacement or improvement of a system
      element(s) will at least restore original system performance. II. ORIGINATION
      THROUGH POST-CLOSING/ENDORSEMENT A. Title II Insured Housing Programs Forward
      Mortgages 3. Underwriting the Property Handbook 4000.1 189 Last Revised: 11/26/2025
      Item Provisions that must be reflected in any acceptable shared well agreement
      include the following: 15 Specify required cost sharing for: • the energy supply
      for the well pump; • system maintenance, including repairs, testing, inspection
      and disinfection; • system component replacement due to wear, obsolescence,
      incrustation or corrosion; and • system improvement to increase the service
      life of a material or component to restore well yield or to provide necessary
      system protection. 16 Specify that no party is responsible for unilaterally
      incurred shared well debts of another party, except for correction of emergency
      situations. Emergency correction costs must be equally shared. 17 Require that
      each party be responsible for: • prompt repair of any detected leak in this
      water service line or plumbing system; • repair costs to correct system damage
      caused by a resident or guest at their Property; and • necessary repair or replacement
      of the service line connecting the system to the dwelling. 18 Require equal
      sharing of repair costs for system damage caused by persons other than a resident
      or guest at a Property sharing the well. 19 Ensure equal sharing of costs for
      abandoning all or part of the shared system so that contamination of ground
      water or other hazards will be avoided. 20 Ensure prompt collection from all
      parties and prompt payment of system operation, maintenance, replacement or
      improvement costs. 21 Specify that the recorded agreement may not be amended
      during the term of a federally-insured or -guaranteed Mortgage on any Property
      served, except as provided in items 5 and 11 above. 22 Provide for binding arbitration
      of any dispute or impasse between parties with regard to the system or terms
      of agreement. Binding arbitration must be through the American Arbitration Association
      or a similar body and may be initiated at any time by any party to the agreement.
      Parties to the agreement must equally share arbitration costs. (b) Required
      Documentation The Mortgagee must obtain a valid water test from the local health
      authority or a lab qualified to conduct water testing in the jurisdictional
      state or local authority. When a well test is required, the report may not be
      more than 180 Days old from the Disbursement Date. II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT
      A. Title II Insured Housing Programs Forward Mortgages 3. Underwriting the Property
      Handbook 4000.1 190 Last Revised: 11/26/2025 (O) Individual Residential Water
      Purification Systems (1) Definition An Individual Residential Water Purification
      System refers to equipment, either point-of-entry or point-of-use, installed
      on Properties that otherwise do not have access to a continuous supply of safe
      and potable water. (2) Standard If a Property does not have access to a continuous
      supply of safe and potable water without the use of a water purification system,
      the Mortgagee must ensure that the Property has an individual residential water
      purification system as well as a service contract for the ongoing maintenance
      of the system, a plan approved by the local or state health authority, and an
      escrow account. (a) Approved Equipment for Individual Residential Water Purification
      Systems Water purification equipment must be approved by a nationally recognized
      testing laboratory acceptable to the local or state health authority. The Mortgagee
      must obtain a certification from a local or state health authority which certifies
      that: • A point-of-entry or point-of-use water purification system is on the
      Property. If the system employs point-of use equipment, the purification system
      must be employed on each water supply source (faucet) serving the Property.
      Where point-of-entry systems are used, separate water supply systems carrying
      untreated water for flushing toilets may be constructed. • The system is sufficient
      to ensure an uninterrupted supply of safe and potable water adequate to meet
      household needs. • The water supply, when treated by the equipment, meets the
      requirements of the local or state health authority, and has been determined
      to meet local or state quality standards for drinking water. If neither state
      nor local standards are applicable, then quality must be determined in accordance
      with standards set by the Environmental Protection Agency (EPA) pursuant to
      the Safe Drinking Water Act in 40 CFR Parts 141–142. • A plan exists that provides
      for the monitoring, servicing, maintenance, and replacement of the water equipment,
      and the plan meets the service contract requirements. (b) Borrower Notice of
      Water Purification System The Mortgagee must provide written notification to
      the Borrower that the Property has a hazardous water supply that requires treatment
      in order to II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT A. Title II Insured
      Housing Programs Forward Mortgages 3. Underwriting the Property Handbook 4000.1
      191 Last Revised: 11/26/2025 remain safe and acceptable for human consumption.
      The notification to the Borrower must identify specific contaminants in the
      water supply serving the Property, and the related health hazard arising from
      the presence of those contaminants. The Mortgagee must ensure that the Borrower
      has received a written estimate of the maintenance and replacement costs of
      the equipment necessary to ensure continuous safe drinking water. (c) Service
      Contract for Individual Residential Water Purification Systems Before mortgage
      closing, the Mortgagee must ensure that the Borrower has entered into a service
      contract with an organization or individual specifically approved by the local
      or state health authority to carry out the provisions of the required plan for
      the servicing, maintenance, repair, and replacement of the water purification
      equipment. (d) Approved Plan for Individual Residential Water Purification Systems
      An approved plan is a contract entered into by the Borrower and Mortgagee and
      approved by the local or state health authority, and that sets out conditions
      as described below that must be met by the parties as a condition to insurance
      of the Mortgage by HUD. The plan must set forth the respective responsibilities
      to be assumed by the Borrower and the Mortgagee, as well as the other entities
      who will implement the plan, such as the health authority and the service contractor.
      In particular: • The plan must set out the responsibilities of the health authority
      for monitoring and enforcing the performance of the service contractor, including
      any successor contractor that the health authority may later have occasion to
      name. By its approval of the plan, the health authority documents its acceptance
      of these responsibilities, and the plan should so indicate. • The plan must
      provide for the monitoring of the operation of the water purification equipment,
      as well as for servicing (including disinfecting) and repairing and replacing
      the system as frequently as necessary, taking into consideration the system’s
      design, anticipated use, and the type and level of contaminants present. Installation,
      servicing, repair, and replacement of the water purification system must be
      performed by an individual or organization approved for this purpose by the
      local or state health authority and identified in the plan. The plan must refer
      to specific terms and conditions of the required service contract. • Under the
      plan, responsibility for monitoring the performance of the service contractor
      and for ensuring that the water purification system is II. ORIGINATION THROUGH
      POST-CLOSING/ENDORSEMENT A. Title II Insured Housing Programs Forward Mortgages
      3. Underwriting the Property Handbook 4000.1 192 Last Revised: 11/26/2025 properly
      serviced, repaired, and replaced rests with the local or state health authority
      that approved the plan. The plan must confer on the health authority all powers
      necessary to effect compliance by the service contractor. The health authority’s
      powers must include the authority to notify the Borrower of any noncompliance
      by the service contractor. The plan must provide that upon any notification
      of noncompliance received from the health authority, the Borrower may discharge
      the service contractor for cause and appoint a successor organization or individual
      as service contractor. • The Mortgagee must ensure that any plan developed in
      accordance with this section must provide that an analysis of the water supply
      must be obtained from the local or state health authority no less frequently
      than annually, but more frequently if determined at any time to be necessary
      by the health authority or by the service contractor. The plan must provide
      that if the dwelling served by the water purification system is refinanced,
      or is sold or otherwise transferred with a HUD-insured Mortgage, the plan will:
      • continue in full force and effect; • impose an obligation on the Borrower
      to notify any subsequent purchaser or transferee of the necessity for the water
      purification system and for its proper maintenance, and of the obligation to
      make escrow payments; and • require the Borrower to furnish the purchaser with
      a copy of the plan before any sales contract is signed. (e) Escrow for Maintenance
      and Replacement of Individual Residential Water Purification Systems The Mortgagee
      must establish and maintain an escrow account to ensure proper servicing, maintenance,
      repair, and replacement of the water purification equipment. To the extent permitted
      under RESPA, the amount to be collected and escrowed by the Mortgagee must be
      based upon information provided by the manufacturer for the maintenance and
      replacement of the water purification equipment and for other charges anticipated
      by the service contractor. The initial monthly escrow amount must be stated
      in the plan. Disbursements from the account will be limited to costs associated
      with the normal servicing, maintenance, repair, or replacement of the water
      purification equipment. Disbursements may only be made to the service contractor
      or its successor, to equipment suppliers, to the local or state health authority
      for the performance of testing or other required services, or to another entity
      approved by the health authority. The Mortgagee must maintain the escrow account
      as long as water purification remains necessary and the Mortgage is insured
      by HUD. II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT A. Title II Insured
      Housing Programs Forward Mortgages 3. Underwriting the Property Handbook 4000.1
      193 Last Revised: 11/26/2025 The Mortgagee must provide the Borrower with the
      Water Purification Equipment Rider for signature. (3) Required Documentation
      (a) Borrower Notice of Water Purification System A copy of the notification
      statement (including cost estimates), dated before the date of the sales contract
      and signed by the prospective Borrower to acknowledge its receipt, must accompany
      the submission for insurance endorsement. If a sales contract is signed in advance
      of the disclosure required by this paragraph, an addendum must be executed after
      the information is provided to the prospective Borrower and after they have
      acknowledged receipt of the disclosure. (b) Borrower’s Certification of Water
      Purification System At the time the application is signed, the Borrower must
      sign a certification acknowledging that the Property has a water purification
      system that must be maintained. (c) Approved Plan for Individual Residential
      Water Purification Systems The Mortgagee must ensure a copy of the approved
      plan is provided to HUD. (d) Service Contract for Individual Residential Water
      Purification Systems The Mortgagee must ensure a copy of the service contract
      signed by the Borrower is provided to HUD. (e) Water Purification Equipment
      Rider for Individual Residential Water Purification Systems The Mortgagee must
      ensure a copy of the Water Purification Equipment Rider is provided to HUD.
      (P) Sewage System The Mortgagee must confirm that a connection is made to a
      public or community sewage disposal system whenever feasible and available at
      a reasonable cost. If connection costs to the public or community system are
      not reasonable, the existing Onsite Sewage Disposal Systems are acceptable provided
      they are functioning properly and meet the requirements of the local health
      department. When the Onsite Sewage Disposal System is not sufficient and an
      off-site system is available, the Mortgagee must confirm connection to an off-site
      sewage system. II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT A. Title II
      Insured Housing Programs Forward Mortgages 3. Underwriting the Property Handbook
      4000.1 194 Last Revised: 11/26/2025 When the Onsite Sewage Disposal System is
      not sufficient and an off-site system is not available, the Mortgagee must reject
      the Property unless the Onsite Sewage Disposal System is repaired or replaced
      and complies with local health department standards. (Q) Termites For existing
      Properties, the Mortgagee must confirm that the Property is free of wood destroying
      insects and organisms. If the appraisal is made subject to inspection by a qualified
      pest control specialist, the Mortgagee must obtain such inspection and evidence
      of any required treatment to confirm the Property is free of wood destroying
      insects and organisms. Soil poisoning is an unacceptable method for treating
      termites unless the Mortgagee obtains satisfactory assurance that the treatment
      will not endanger the quality of the water supply. (R) Special Airport Hazards
      If a Property is Existing Construction and is located within Runway Clear Zones
      (also known as Runway Protection Zones) at civil airports or within Clear Zones
      at military airfields, the Mortgagee must obtain a Borrower’s acknowledgment
      of the hazard. If a New Construction Property is located within Runway Clear
      Zones (also known as Runway Protection Zones) at civil airports or within Clear
      Zones at military airfields, the Mortgagee must reject the Property for insurance.
      Properties located in Accident Potential Zone 1 (APZ 1) at military airfields
      may be eligible for FHA mortgage insurance provided that the Mortgagee determines
      that the Property complies with Department of Defense guidelines. iii. Minimum
      Required Repairs When the appraisal report or inspection from a qualified entity
      indicates that repairs are required to make the Property meet HUD’s MPR or MPS,
      the Mortgagee must comply with Repair Requirements. If repairs for Existing
      Construction cannot be completed prior to closing, the Mortgagee may establish
      an escrow account in accordance with Repair Completion Escrow Requirements.
      iv. Leased Equipment The Mortgagee must ensure that the Property Value does
      not include the value of any equipment, including an energy system, that is
      not fully owned by the Borrower. The Mortgagee must review the terms of the
      lease on any equipment to ensure they do not contain any Legal Restrictions
      on Conveyance (Free Assumability). II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT
      A. Title II Insured Housing Programs Forward Mortgages 3. Underwriting the Property
      Handbook 4000.1 195 Last Revised: 11/26/2025 v. Quality of Appraisal The Mortgagee
      must evaluate the appraisal and ensure it complies with the requirements in
      Valuation and Reporting Protocols, and any additional appraisal requirements
      that are specific to the subject Property. vi. Appraisal Review The Mortgagee
      must review the appraisal and ensure that it is complete, accurate, and provides
      a credible analysis of the marketability and value of the Property. vii. Chain
      of Title The Mortgagee must review the appraisal to determine if the subject
      Property was sold within 12 months prior to the case number assignment date.
      If the subject Property was sold within the previous 12 months the Mortgagee
      must review evidence of prior ownership and determine if there are any undisclosed
      Identity-of-Interest transactions, and for compliance with Restrictions on Property
      Flipping. viii. Opinion of Market Value The Mortgagee must ensure the Market
      Value of the Property is sufficient to adequately secure the FHA-insured Mortgage.
      ix. Reconsideration of Value The underwriter may request a reconsideration of
      value when the Appraiser did not consider information that was relevant on the
      effective date of the appraisal. The underwriter must provide the Appraiser
      with all relevant data that is necessary for a reconsideration of value. The
      Appraiser may charge an additional fee if the relevant data was not available
      on the effective date of the appraisal. If the unavailability of data is not
      the fault of the Borrower, the Borrower must not be held responsible for the
      additional costs. The effective date of the appraisal is the date the Appraiser
      inspected the Property.'
  judgment: false
