Well & Septic and FHA Property Appraisals

by Michael on August 21, 2011

There a couple of things that HUD looks for when you appraise homes with well and septic. First, you need to verify whether the property can be hooked up to the municipality’s public water and sewer system. If it can, but it would cost more than 3% of the sales price, then the existing on-site system will work ( see HUD handbook 4150.2, page 11). Second, you need to verify the distance from the well to the septic tank and drain field. Below is a list of HUD’s required distances (link to HUD).

The distance from the well to the drain field can be reduced to 75 ft. if the well goes through an impervious strata of hardpan, essentially preventing the entrance of surface water and contaminants. This may require a waiver see below. This also is similar to MN Department of Health requirements. It should be noted that if the well goes through sand, is not encased, or is a shallow sand point well, the distances may be required to be extended.

(SUP1) This clearance may be increased or decreased depending upon soil and rock penetrated by the well and aquifer conditions. The clearance may be increased in creviced limestone and permeable strata of gravel and sand. The clearance may be reduced to 50 ft. only where the ground surface is effectively separated from the water bearing formation by an extensive, continuous and impervious strata of clay, hardpan, or rock. The well shall be constructed so as to prevent the entrance of surface water and contaminants.

It does become a little confusing because the above chart is for both new construction and existing properties, and if it’s an existing property it has to meet the conditions of Mortgagee Letter 2002-25, which states:

If, however, the locality permits distance requirements less than those prescribed by FHA, the property may be considered eligible for a mortgage insured by FHA provided that the lender submits evidence in the case binder that the subject property is in compliance with the applicable local or state distance requirements and meets the conditions stated below. Therefore, waivers from the Homeownership Centers (HOCs) will no longer be necessary for properties meeting these distance requirements:

• Domestic Well from Septic Tank Drain Field: FHA will recognize state/local distance requirements provided they do not allow for less than 75 feet of separation.
• Domestic Well from Property Line: FHA will recognize state/local distance requirements provided that the well is not within 10 feet of any roadway or the property line of other than a single-family residential property, i.e., the well cannot be within 10 feet of a commercial, industrial, or multifamily building.

If the well and septic don’t meet the above mentioned requirements, then there is still a chance that the property will qualify for FHA insurance. The property would have to get a waiver from the HOC (Homeownership Center), which is done on a case by case basis. You can download the procedures by following this link.

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