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Conventional, FHA and VA requirements related to TERMITE REPORTS...



We've been getting a lot of questions lately about the requirements each main lending product - Conventional, FHA and VA - and their requirements as it relates to Termite.


GENERAL TERMITE STUFF


First - you want to understand the report itself, and the difference between Section 1 and Section 2 items on a termite report. Section 1 indicates active infestation. Section 2 are things that are not urgent, but could ultimately result in an active infestation.


Regardless of the loan type, generally speaking, if termite report is required, lenders will require the REPORT be reviewed prior to loan docs being released for signature, and the CLEARANCE prior to funding and closing the transaction. So, you do not have to have all of the work done before contingencies are removed - just before the close of escrow - even if the tent comes off on the COE.


Now - here are the loan specific items related to termite:


CONVENTIONAL AND FHA


Conventional and FHA loans DO NOT REQUIRE termite clearance. If termite is in the purchase contract, the underwriter will require clearance, BUT, it is not required. So, you do not have to include termite in the contract, and even if you DO include it in the contract and decide LATER that you do not want it - you can do an addendum to the contract that REMOVES termite and the Underwriter will take that in lieu of a clearance - GENERALLY - even if they've already seen the report - pending the report doesn't bring up some other fundamental issue.


VA IS DIFFERENT


If you are doing a VA loan in a state that requires termite clearance - they will REQUIRE Section 1 CLEARANCE. That means that the home has to be delivered to the veteran clear of any evidence of active infestation. The report is generally done right away, and just like any other loan, the clearance can happen prior to funding. Section 1 always has to be cleared, and Section 2 is up to the underwriter. Generally it is not required, but there are cases where an Underwriter will require section 2 items be addressed as well, but usually they are minimal. ie: maybe a pile of dirt is built up above the foundation line and is touching wood siding. There is no active infestation, but the UW may require it be corrected by breaking that contact so no infestation happens in the future.


The Veteran CANNOT pay for the report itself - but the report is generally cheap, if not free as a part of the work order. BUT - the Veteran CAN pay for the actual work. So in negotiations, if the buyer is willing to pay to get the Section 1 clearance, that is possible, and VA is fine with it.

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