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Renovation Loans and Septic Systems

Over the last 18 months or so, we’ve seen quite a few projects that include repair or replacement of septic systems. That’s another type of job where the 203k is helpful.

Much of our housing stock is aging. The degree of aging depends on where you are. In Florida, the average house may only by 10 or 15 years old. In New Jersey, however, the average age of homes is closer to 40 years. Regardless, the average life span of a septic system is about 20 years, depending on how well it was maintained. Not surprisingly, we see many reports of septic systems in need of repair or replacement as people look to buy new homes.

Often, the seller doesn’t have funds to do the work prior to close. And if you’re the buyer, do you really want the seller — who is probably going to do it as cheaply as possible — handling repairs on the septic system that your family will be using for the next 10 or 20 years?

If I was the homebuyer, I’d rather be the one who picks the septic contractor. That way, I could make sure the contractor has sound experience, and does a job that’s going to last.

There are a few things to keep in mind when fixing a septic system with a renovation loan, especially with a FHA 203k.

If you’re installing a new septic system on less than an acre, HUD requires a waiver. That applies only to new systems, not replacements. In such cases, HUD will inspect the project and make sure it meets their guidelines before granting the exception. We’ve done a few of these in the last few months, and the exception usually comes through in about 7-to-10 days. Keep that in mind when buying a property. And make sure your agent keeps it in mind when making a contract offer.

To get the exception from HUD, you’ll also need a water test if there’s a well and drawings from the septic contractor.  All of that must be done prior to close. So if you’re buying a home that has a septic system in need of replacement, as opposed to repair, you can potentially be out about $1,000 if the septic contractor won’t foot the bill and allow you to pay out of the renovation budget.

Those are possible pitfalls you should be aware of when looking at projects. They may not affect you, but going into the process as an informed customer can save you money and time.

One more thing to be aware of: You can do septic repair in a refinance if your existing home has septic problems.

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