You've been pre-qualified for a 3.5% down-payment, FHA home loan, to buy the house of your dreams in Scottsdale, Arizona. You and your Realtor have searched for months and finally narrowed it down to one home. It's a short-sale located in beautiful Scottsdale, AZ. This is the ideal location; not too far from your office, great schools for the kids, plus terrific dining and night-life for you and your wife.
Your Realtor is very sharp and has well over twelve years of experience selling high-end homes in Scottsdale. You make it through the inspection period with no items needing repair. Your Realtor gives your lender the go ahead to order the appraisal. The FHA appraiser returns the completed appraisal with a value equal to the sales price. You're feeling terrific because you've just locked in an incredibly low interest rate of 4.875%, which is fixed for 30 years, on an FHA home loan.
Everything seems to be moving along smoothly, until you get a call from your Loan Officer. She sounds concerned and you immediately begin to panic. She tells you that the lender has turned down your loan because the house has a shared well for water, which is connected to more than four homes. You don't understand why your loan was declined? Your Realtor doesn't understand either; he has sold many homes in this area without a problem, which were also financed.
The reason some lenders cannot finance a home with a shared well connected to more than 4 homes, is that it doesn't fall within the standard FHA loan guidelines. Prior to 2007, many of the homes in Scottsdale were financed with conventional financing. Therefore, very few Realtors and Loan Officers ever experienced a problem with this specific circumstance. Self-admitted, many industry professionals need to educate and enhance their knowledge of FHA guidelines. It is possible for this home to be financed under FHA guidelines; however, it will require some additional documentation, more work from everyone involved, and maybe even a few sleepless nights.
Hopefully, you are working with educated professionals that will be able to alleviate many of those restless nights and extra stress!
This was an actual scenario we experienced with one of our referrals. Luckily, we were able to fund this client's loan after he received a loan denial from another lender. Although in order for this loan to work, there are a few specific requirements that need to be met. First, the water must flow through a valve dwelling service line, so that water may be shut off to each served dwelling without interrupting service to other properties. Secondly, the well must be connected directly to the pumping energy source (not a dwelling); and the energy being used for pumping must be separately metered. Finally, the well must be covered by an acceptable well agreement through one of the five documents/entities listed below:
- Control by Public Utility Commission
- Trust Deed
- Third Party Beneficiary Contract
- Property Owners' Association
- Franchises from Governmental Authority
The following identifies the additional documentation required in order to close this loan for our client. These items do carry a few additional fees.
- Documentation provided by a Septic Inspector stating that the well sits a minimum of 50 feet from the septic tank, 100 feet from the drain and 10 feet from the property line.
- Certified pumping test
- Potable water certification
Special thanks to Beeman Pump Company and A-American Septic Service are in order for making this transaction successful.
If you're currently considering purchasing a home with a shared well connection to more than 4 homes and need some assistance, please contact David Krushinsky at 602-695-7575 or david@dkhomeloans.com.
daKrusher, I was working at a mortgage bank during a local E. Coli scare. A lot of my applicants were on wells. Even though this strain of E.Coli was not found in well water, everyone was on pins and needles. I disliked surprise more than anything so to avoid the displeasure, I got a bunch of sealed bottles from the health department and sent them home with my borrowers on well water to expedite testing. (These were actually portfolio loans, not FHA's) I took a lot of ribbing from the guys I worked with that it appeared I was performing drug tests on each borrower as they walked out of my office clutching a small bottle. But it sure beat waiting until the other shoe dropped! :) Kate
That's really funny Kate. I think if I worked with you, I would be "ribbing" you too. With the strict guidelines today, it almost seems like borrowers should expect to be drug-tested for their loan.
While this specific scenario may not be related to many home sales on well and septic, this is important information for all agents to know to protect their buyers and/or sellers.
Shhhh, David. FHA will hear and take action. :)
Another great post with information pertinent to the subject at hand.
Our Realtors may not remember the specifics of this post a year from now, but they will think "Gee in the back of my mind I remember something weird about septics and wells".
That's why as a Texas Loan Officer, I respect your posts.
Thanks for the great information today.
Patricia/Seacoast NH
Thanks for the great information today.
Patricia/Seacoast NH
Hi David -- Wow, real estate is a strange animal as you never know what you might encounter.
Thanks for sharing the info....shared well in Scottsdale...interesting
This is a great post. Thank you so much for the information. You might say it's "tweet!"
Awesome info! I'm always learning.
David,
I had no idea FHA had that rule... thanks for the info. Good for you for going the extra mile for your clients as well.
Follow me on twitter @tiffanycloud
David,
Every once in a while we do deal with a home that is on a shared well system. None of them have ever financed FHA though.
Thanks for the information.
I've read the post but intend to bookmark.
Thanks for the information. I've had buyers confront a similar concern when looking for homes in Rio Verde, AZ,
David, I really enjoyed your story. In 20 years of selling real estate in a metro area, I have never heard of this. Even when I have sold in an area with well and septic it has never been shared. However, I did sell a home in a city suburb that had three homes with a shared french drain system that no one was aware about unbtila problem. It is helpful to learn from a scenario like these, becasue it tells us that a solution may still be possible.
David - Thanks for sharing, I hope I don't sound ignorant but I had never realized that multiple homes could be on the same system. Learning something new everyday...AR is great...
Great Job you did for your clients!
I have not run into this problem myself. But I appreciate the heads-up!
Had a similar problem in Sahuarita AZ. Had 8 people on the well. The only thing that saved it is that there were actually 2 wells. We had to get 3 other people plus my customer to agree to leave the one well for the other. It took some work, but the community understood the value behind the adjustment. The selling realtor never knew about the guideline.
I love active rain for one of the many reason, people love to share their good and bad experience. Haven't ran into this situation in Northern Virginia area. Thanks for sharing.
Thanks David! Oh, by the way, I spent a few great years living in Tucson on Amahl Drive. Love Arizona!
Great Read! Considering Az Standards of Proffesional Practice do not require home Inspectors to report these findings let alone report on underground storage tanks or if water/waste is public or private....See AZBTR Rules here. Interesting, interesting read indeed...
Target Building Inspections
Great info... It's amazing what is forgotten, what is learned every single day in this industry. Inspectors should be afforded the right to not report everything. I'm dealing with a well issue, so you should be glad that I pulled this page on a google search.
T.T.
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Great info... It's amazing what is forgotten, what is learned every single day in this industry. Inspectors should be afforded the right to not report everything. I'm dealing with a well issue, so you should be glad that I pulled this page on a google search. T.T.
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