What You Need To Know Before Buying A House With Foundation Issues
Andrew Dehan8-minute read
June 03, 2021
You’ve been preapproved for a mortgage, and probably spent months – maybe more – searching for your dream home. You took pictures and measurements, and you’ve been decorating and redecorating in your mind’s eye.
Maybe you even offered above asking, just to seal the deal. And once everyone signed the contract, it seemed like it was just a matter of counting the days until closing.
Except that pesky home inspection found that there were issues with the foundation. Those words might sound like the death knell for your purchase, but that’s not always the case.
Read on to find out which problems are deal breakers, and which are mere speedbumps on the road to home ownership.
What Are Foundation Issues?
A home inspector takes a close look at the structural integrity of the home you want to buy. Part of that inspection means looking for cracks, moisture, water damage and window/door problems which could reveal that the foundation of the home is shifting or sinking. These observations might indicate a problem with the foundation.
To be sure, you’ll need to hire a structural engineer. The engineer will perform testing and other specialized analyses to determine whether there is a problem, and how serious it is.
Should The Seller Have Disclosed That There Were Problems With The Foundation?
If your seller was aware of foundation problems, they should have disclosed that fact to you when you first viewed the home. However, owners are often unaware of foundation problems.
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What Causes Foundation Issues?
A home built incorrectly, or in certain conditions, can easily have foundation problems.
Certain types of soils, especially clays, have a greater tendency to expand, particularly if the area they are in experiences both very hot and very cold conditions. You should ask about the soil in the areas where you’re looking for your new home.
If you spot even small cracks in a home built on clay, you should call a structural engineer right away.
Water that falls against the foundation, or pools there, can cause significant damage. You can spot drainage issues by making sure the ground closest to the foundation is graded, that the gutters and downspouts are cleared and in good repair, and by looking for any obvious water damage.
Before construction begins, the contractor should test the soil to make sure they know what they are building on, and to take adequate precautions to guard against foundation problems. The contractor should also strive to build the home on as close to a completely level foundation as is possible.
Is There Such A Thing As A Minor Foundation Issue?
Yes, and some aren’t too expensive to repair. In fact, the foundation issues themselves are not dangerous to you or your family, but they’ll allow other, more concerning problems – like mold or vermin – to seep into your new home.
Should the home inspection or your own observation reveal cracks in the walls, ceilings or the home’s exterior, you should consider hiring a structural engineer to carry out a closer inspection of the foundation. The engineer will determine if problems are minor and not a small symptom of a much bigger problem.
Very small cracks, or those a quarter-inch thick or less, are common in old homes that have settled over the years, although it's quite possible that these small cracks are indicative of a larger problem. Ceiling cracks are another early warning sign of potential foundation problems.
These cracks can simply be repaired. Assuming the foundation is still sound, those small cracks can be patched by a professional, who will likely also recommend that you grade the soil around the foundation to divert water from the house. According to Home Advisor, these minimal repairs could cost as little as $500.
Large cracks indicate the foundation is undergoing a considerable shift, which means there may be larger structural problems with the home. Pay particular attention to horizontal cracks in the foundation, or cracks that look like stairs in exterior bricks.
Large cracks will allow water and worse to enter the home freely and cause even further damage once inside. According to Home Advisor, you can expect to pay between $2,000 – $7,000 to repair a foundation leak.
As mentioned earlier, foundation issues don’t necessarily render a home unsafe for its occupants. But it does make the home highly vulnerable to problems that moisture causes or worsens, like mold or pests.
Look for signs of water or water damage in crawl spaces and basements. Not all moisture or water damage means that there’s a structural problem, but if you find such problems, make sure you take a hard look at the foundation.
If a foundation is shifting, the home’s doors and windows are a likely place to spot problems. If they are hard to open, or if gaps appear between walls and the windows/doors, there could very well be a problem.
Likewise, if there are gaps between walls and ceilings, or sloping floors or cracked flooring, pay particular attention to the foundation during the home inspection process.
Bowing, Sinking Or Sloping
If the home you’re considering is showing any of these signs, you’re likely aware that there are going to be significant problems. If the home you want to buy shows this kind of damage, it’s highly likely that the foundation issues are significant and that repairs will be costly.
You’ll need to talk to a structural engineer to find out exactly what needs to be done, but significant repairs can easily run in excess of $10,000.
Should I Buy A House That Needs Foundation Repair?
The decision may not be yours alone to make. Your lender will definitely have a say.
Remember, the preapproval process depends on your creditworthiness and financial situation, but the final approval often hinges on the value of the home you are trying to buy, as that is the security for the loan.
If You’re Applying For A Government-Backed Loan
If you’ve applied for an FHA, VA or USDA loan, you probably understand that those programs have strict requirements regarding the structural soundness of the home you’re seeking to purchase. The U.S. government offers these loans to help low- and medium-income earners buy safe housing for themselves and their families.
Specifically, to get final mortgage approval, the appraisal must show that the roof and foundation are in good condition, among other things. Finding that the foundation needs repairs may delay, if not stop, your purchase of that home.
If You’re Applying For A Conventional Mortgage
Private lenders are less interested in the livability of the home and more interested in whether the home’s resale value will cover the amount of the loan. If the seller agrees to make the repairs and makes them quickly, your closing might be slightly delayed, but will go forward once proof of the repair has been received.
Alternatively, in the case of minor foundation problems, your lender may agree to an escrow holdback. This would allow the closing to proceed as scheduled but would retain a portion of the seller’s proceeds to cover the cost of the repairs plus a premium to make sure the work gets done as promised.
On the other hand, if you agree to pay for the cost of repairs, you may be required to put that money into escrow until you can show that the work has been completed.
What Should I Do If The Home Inspection Reveals Foundation Issues?
Foundation issues don’t have to doom the deal, though they are serious and should never be ignored, even if they look minor. You should understand, however, that a foundation issue will likely cause at least a delay with closing and could endanger your mortgage application, because lenders are skittish about homes with foundation issues.
Your first call after learning of a foundation problem should be to your real estate agent, for their advice on how to proceed. Your next call should alert your lender to the problem.
Your next task is to hire a structural engineer to fully assess the problem. Be sure to ask if there is evidence of prior foundation repairs, because if they were done by a reputable contractor, there may be a warranty that will cover the cost of the new repairs.
Negotiate A Discount
Armed with the home inspection and the structural engineer’s report, you are in a good position to negotiate with the seller. Remember, if your inspection revealed problems, the seller must disclose those problems going forward.
If they can’t or won’t make the repairs for you, they’re going to have to offer the house as-is, which will attract house flippers and other investors looking for a deep discount.
Your goal is to have the seller pay for repairs out of their pocket or, if they can’t afford the repairs, agree to a steep reduction in the purchase price that will cover the costs of the repairs and compensate you for having to oversee them.
Pay Cash, Or See If Your Lender Will Reconsider With A Bigger Down Payment
In real estate, as in the rest of life, having access to cash can solve an astonishing number of problems. If it’s at all possible (and the upside of the property is such that, over the long term, it makes sense to undertake costly repairs now and recoup your loss at resale), you may decide to forgo financing and proceed to close with an all-cash deal.
If you can’t swing that, and the foundation problems are minor to moderate, your lender may be persuaded to proceed if you increase your down payment to cover the cost of repairs and the risk they’d otherwise be absorbing.
Consider A Rehabilitation Loan
Although all three government-backed loans require that homes are structurally sound before mortgage approval is final, they also offer rehabilitation loans to facilitate repairs.
The FHA offers 203(k) rehabilitation loans, which provide funds for major repairs needed to make homes habitable.
The USDA offers rehabilitation loans as well as purchase funds if you’re purchasing a home in one of its approved districts and earn 80% or less of the area’s median income.
The VA also offers additional funds for renovation to qualifying service members and their families.
It can be heartbreaking, but sometimes the only thing you can do when you’re dealing with foundation issues is to walk away. If the seller won’t make repairs, the damage is too extensive or you can’t wait for repairs to be completed, you may have no choice but to give up and find your next dream house.
If your sales contract included a home inspection or appraisal contingency, your earnest money will be returned to you. Unfortunately, if you’re attempting to purchase a home in a competitive market, you may have made a no-contingency, or clean, offer. In that case, this is one of the risks you assumed and your earnest money will probably be forfeited.
You may be able to get your earnest money returned, however, if it's clear that the seller knew there was a problem but failed to disclose it. Evidence of undisclosed prior repairs might be enough to convince the seller to agree to a return of your deposit.
What If I Don’t Discover The Foundation Problems Until After Closing?
If your recently purchased home has foundation problems that weren’t disclosed by the seller or found by the home inspector, you may have legal recourse against those parties. If your home inspector carries professional liability insurance, you might get all or at least some of your costs reimbursed.
Consult the real estate attorney who handled your closing to find out whether you have grounds to initiate a lawsuit, your likelihood of success and how much you can expect to recoup.
The Bottom Line: You Shouldn’t Ignore Foundation Issues, And Your Lender Won’t
Foundation issues are serious and can’t be ignored, no matter how minor they may look and how much you love the house you’re trying to buy. Even if you’re willing to overlook them, your lender will not be quite so accommodating.
Particularly if you’re a first-time home buyer, a major foundation repair might be too much for you to take on. The important thing to remember is that there are other houses out there, with nice solid foundations, that you’ll find just as dreamy. In the end, you’ll probably be grateful that the inspector found the problem and that you dodged a repair nightmare.
Learn more about the home buying process when you’re ready to start house hunting again.
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