How to Handle the Heat

As summer turns to fall, the warm weather turns to brisk evenings and cool early mornings, many will look to flip on that thermostat, load the wood stove or even plug in a space heater. Modern times provide us with numerous ways to keep warm when it’s cold. Mortgagees, however, have certain criteria for heat sources and this can be a huge hurdle when trying to close a sale or obtain a refinance.

I’ve divided financing types into 4 basic groups to better understand the requirements for heat sources: Conventional, FHA, VA, and Cash or unique financing.

Conventional Financing

Typically, conventional financing loans must conform to the FNMA Selling Guide. Referring to heat sources, the selling guide states:

“The improvements should conform to the neighborhood in terms of age, type, design, and materials used for their construction. If there is market resistance to a property because its improvements are not compatible with the neighborhood or with the requirements of the competitive market because of adequacy of plumbing, heating, or electrical services; design; quality; size; condition; or any other reason directly related to market demand, the appraiser must address the impact to the value and marketability of the subject property.”

Simply put, the heat source, as with all of the improvements, needs to conform to the subject’s market. If a wood stove is common for the market, it would be acceptable. Typically, this is shown by including at least one comparable on the appraisal with a similar heat source. It may be helpful to the appraiser for a realtor to research and make sure there are similar sales with the same heat source as the subject.

FHA Financing

FHA has specific guidelines for Minimum Property Requirements (MPR’s) outlined in HUD Handbook 4000.1.

“The Appraiser must examine the heating system to determine if it is adequate for healthful and comfortable living conditions, regardless of design, fuel or heat source.

The Appraiser must notify the Mortgagee of the deficiency of MPR or MPS if the permanently installed heating system does not: 1) automatically heat the living areas of the house to a minimum of 50 degrees Fahrenheit in all GLAs, as well as in non-GLAs containing building or system components subject to failure or damage due to freezing; 2) provide healthful and comfortable heat or is not safe to operate; 3) rely upon a fuel source that is readily obtainable within the subject’s geographic area; 4) have market acceptance within the subject’s marketplace; and 5)operate without human intervention for extended periods of time.”

There is a lot to digest in these FHA guidelines. The heat source, just like FNMA, needs to be conforming to the market and run off a fuel source that is available within the local market. The heat source also has to automatically heat all living areas of the home to a minimum of 50 degrees without human intervention for an extended period of time. Although a wood stove may be cozy to snuggle up in front of, its not going to cut it as your sole heat source for an FHA loan. Nevada County does have many different types of heat fuels available including propane, heating oil, kerosene, and diesel.

VA Financing

VA also has a Lenders Handbook where Chapter 12 describes the Minimum Property Requirements (MPR’s).

“Heating must be adequate for healthful and comfortable living conditions. If the property has an unvented space heater, see the requirements in Section 11.12.

Homes with a wood burning stove as a primary heating source must also have a permanently installed conventional heating system that maintains a temperature of at least 50 degrees Fahrenheit in areas with plumbing.”

VA specifically mentions homes that have a wood stove as the primary heat source. These homes must also have a secondary heating system that heats the home to a minimum of 50 degrees where there is plumbing in the home. A cost effective wall heater can be permanently installed quite easily to satisfy this condition as long as it heats the area where there is plumbing. It is up to the analysis of the assigned VA appraiser to determine if the heat source is applicable for these areas.

Cash and Other Financing

Cash is King! Cash and other financing such as private lender and owner financing typically do not have specific guidelines on heat sources. It’s always best to check with the loan officer to see if the specific lender has any additional requirements.

Types of Financing in Nevada County

The types of financing have been pretty consistent within Nevada County in 2017 and 2018.

Examples

Here are some of the most common heat source examples found within Nevada County.

Forced Air Heating System

This is the most common heating system found, and would qualify for all types of financing.

Wall Furnace

Commonly found in older homes without cooling systems, a wall furnace would also qualify for all types of financing

Split System Heat Pumps

This is one of the newer types of heating and cooling systems. It has a compressor/condenser on the exterior of the home and individual air handlers on the interior which cycles and distributes the air. Split Systems qualify for all types of financing

Pellet Stoves

Pellet stoves typically have a reservoir of small wood pellets that are automatically released and used as fuel for the stove. Pellet stoves can have thermostats and typically last for 1-2 days before having to be refilled. I’ve contacted both VA and FHA, and as long as the reservoir will last for 1-2 days without having to be refilled, a pellet stove adheres to MPR’s. Pellet Stoves also satisfy FNMA heating requirements in Nevada County.

Radiant Floor Heating System

Typically Hot Water flows through the floors and heat rises to warm the home. It feels wonderful on the feet. It’s also very common for electrical radiant heat coils to be installed in bathrooms. Radiant Heat systems qualify for all types of financing.

Wood Stove

Since wood stoves require human intervention and do not automatically heat the home to a minimum temperature, they do not qualify as the sole heat source for FHA or VA. As long as they are typical within the market, a wood stove is an acceptable heat source for FNMA.

Propane or Natural Gas Stoves

They may look exactly like their cousin, the wood stove, but propane or natural gas stoves are thermostatically regulated and can be operated as long as there is a gas supply. They qualify for all types of financing as long as the stove is manufactured to heat the living area of the home.

Electric Wall Heaters

Because most electric wall heaters are quite cost effective, they are the most common heat source installed during escrow to satisfy financing requirements. Things to remember: The heaters must be hard wired into the electrical system and considered a fixture of the home. For FHA loans, the heater (or multiple heaters) must have a manufacturer rating sufficient to heat the entire Gross Living Area (and non-GLA areas containing building components) to a minimum 50 degrees. For VA loans, the heater must have a manufacturer rating sufficient to heat the areas of the home only with plumbing (if there is also wood stove or fireplace) to 50 degrees.

Space Heaters

Space Heaters come in all shapes and sizes but if they are not affixed to the home (permanently attached) they are considered personal property and do not qualify as a heat source.

In Conclusion

There are several compliant and non-compliant heat sources for various types of financing. During the appraisal observation the type of heating system will be analyzed and confirmed if it meets lending requirements. If there is any question on the heating source, it’s best to contact me or another local appraiser. I am FHA and VA certified and would be glad to offer my expertise before the appraisal.

Feel free to call or text 530-632-3428 or email me at brian@snappraisal.com. Stay Warm!