www.hudclips.org 


U. S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
WASHINGTON, D. C. 20410-8000

May 19, 1988
OFFICE OF THE ASSISTANT SECRETARY FOR
HOUSING-FEDERAL HOUSING COMMISSIONER
Mortgagee Letter 88-16
TO:       ALL APPROVED MORTGAGEES
SUBJECT:  Single Family Production - Including Home Inspection Fees
            in Closing Costs
 
     As you know, HUD requires an appraisal of an existing property
to estimate its value for mortgage insurance purposes.  The appraisal
does not guarantee that the property is free of defects and we inform
homebuyers of this on the "Homebuyer Copy" of the Form HUD 92800.5B,
Conditional Commitment/Direct Endorsement Statement of Appraised
Value.  This form further advises the homebuyer to inspect the
property himself and to engage the services of a private inspection
service to assure that the property is in good condition.
 
     To encourage homebuyers to seek inspection services, HUD will
now make it easier for homebuyers to pay for the cost of a private
inspection service to inspect an existing property.  Effective
immediately, HUD will permit the cost of this private inspection (up
to a maximum of $200) to be financed by permitting the cost to be
included as part of the homebuyer's closing costs for purposes of
calculating the maximum mortgage amount.  (A statement of the
mortgagor's intent to utilize the service must be included with the
application or included in the sales contract.)  Including the cost
of this private inspection in closing costs is only permissible for
existing properties or properties completed less than one year that
were not approved by HUD or the Veterans Administration prior to the
start of construction and did not involve a 10 year warranty.
 
     Of course, only the actual charge for the inspection can be
included in the closing costs, up to the $200 maximum.  The homebuyer
may pay more than $200, but a maximum of $200 may be included in the
closing costs.  The inspection may be performed by any firm or
individual, including an engineer, construction analyst or other
professional home inspector, selected by the homebuyer, that offers a
home inspection service.  The only conditions are that a written
report must be provided to the homebuyer, that a copy of the report
be included in the case binder when the lender requests insurance
endorsement and the settlement agent must be provided with a bill, or
a paid receipt if the mortgagor is to be reimbursed for the cost of
the inspection at settlement.  (Insert the inspection report on the
right side of the case binder after the URAR and photographs.)  We
encourage lenders to advise potential HUD mortgagors of the financing
aspect of this inspection fee at the time of loan application.
 
     If you have any questions concerning this letter, please contact
your local HUD office or the HUD Headquarters Single Family Valuation
Branch at (202) 755-6720.
 
                                   Sincerely yours,
                                   Thomas T. Demery
                                   Assistant Secretary