What You Need To Know Before Buying A House With Foundation Issues

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You’ve received initial approval for a mortgage, and perhaps 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 the asking price, just to have a better chance of sealing 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 issues with the foundation. Those words – foundation issues – might sound like a dead end, but this isn’t always the case.

Let’s find out which foundation problems are deal breakers, and which are mere speedbumps on the road to homeownership.

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 to perform testing and other specialized analyses to determine whether a problem exists, and, if so, how serious it is.

Should The Seller Have Disclosed 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.

If your seller was aware of foundation problems, they should’ve disclosed that information to you when you first viewed the home. However, homeowners are often unaware of foundation problems. This is why home inspections are so important – they help you learn info about the house that even the sellers might not know.

What Causes Foundation Issues On A House?

A home that’s built incorrectly, or in certain conditions, can easily have foundation problems. See some examples below.

Soils

Certain types of soils, especially clays, have a greater tendency to expand, particularly if the area they’re 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, it’s wise to call a structural engineer right away.

Drainage Problems

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 and the gutters and downspouts are cleared and in good repair. Also, you can look for any obvious water damage.

Poor Construction

Before construction begins on the home, the contractor should test the soil to make sure they know what they’re building on, and to take adequate precautions against foundation problems. The contractor should also strive to build the home on as close to a completely level foundation as is possible.

Is It Possible To Have A ‘Minor’ Foundation Issue?

Minor foundation issues do exist, and some aren’t too expensive to repair. In fact, the foundation issues don’t directly endanger you or your family, but they’ll allow other, more concerning problems – like mold or vermin – to seep into your new home.

Cracks

If the home inspection or personal observation reveals 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 whether the problems are minor and not a small symptom of a much bigger problem.

Small Cracks

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 and should be since the value of a home is a crucial factor to consider for borrowers going through the approval process. 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 HomeAdvisor, these minimal repairs could cost as little as $500.

Large Cracks

Large cracks indicate the foundation is undergoing a considerable shift, possibly revealing bigger 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 more damage once inside. According to HomeAdvisor, you can expect to pay $2,000 – $7,000 to repair a foundation leak.

Moisture

As mentioned earlier, foundation issues don’t necessarily render a home unsafe for its occupants. But they do make the home highly vulnerable to problems, like mold or pests, that moisture causes or worsens.

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 one, make sure you take a hard look at the foundation.

Gaps

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, a problem may well exist.

Likewise, if gaps appear between walls and ceilings, uneven 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 signs of bowing, sinking or sloping, significant – and costly – problems are likely to arise.

You’ll need to talk with a structural engineer to find out exactly what needs to be done, but significant foundation repairs can easily cost in excess of $10,000.

Should I Buy A House That Needs Foundation Repairs?

The decision may not be yours alone to make. Your lender will definitely have a say.

Remember, your initial approval depends on your creditworthiness and financial situation, but the final approval often hinges on the value of the home you’re trying to buy, as that’s the security for the loan.

If You’re Applying For A Government-Backed Loan

If you’ve applied for an FHA (Federal Housing Administration), VA (Department of Veterans Affairs) or USDA (U.S. Department of Agriculture) 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 them and their families.

Specifically, to get final mortgage approval, the home appraisal must show that the roof and foundation are in good condition, and meet other criteria as well. 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 than in whether the home’s resale value will cover the amount of the loan. If the seller agrees to make the foundation repairs and makes them quickly, your closing might be slightly delayed, but it will go forward once proof of the repair has been received.

Escrow Holdback

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. This ensures a smoother home-buying process.

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.

Remember, buying a house with foundation issues is a major consideration for your lender as well as you. Make sure you’re approved to buy with a lender you trust, and one who can help you navigate the unexpected.

What Should I Do If The Home Inspection Reveals Foundation Issues?

Foundation issues don’t have to doom the deal, though they’re 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 and approval status, because lenders are cautious about homes with foundation issues.

Your first call after learning of a foundation problem should be to your real estate agent, seeking 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’s evidence of prior foundation repairs, because if a reputable contractor did them, a warranty may 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 the seller 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, having access to cash can solve some 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, the government also offers 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 buying a home in one of its approved districts and earn 80% or less of the area’s median income.

The VA offers additional funds for renovation to qualifying service members and their families.

Fannie Mae and Freddie Mac also offer rehabilitation loans with their HomeStyle Renovation loans and CHOICERenovation mortgages.

When To Walk Away From Foundation Issues

It can be heartbreaking, but sometimes your only real choice when 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 of 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.

If you do decide to walk away and start your home search again, you may also have to restart the mortgage approval process, depending on when your existing approval expires.

What If I Don’t Discover The Foundation Problems Until After Closing?

If your recently purchased home has foundation problems that the seller didn’t disclose or the home inspector didn’t find, 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, as well as your likelihood of success and how much you can expect to recoup.

The Bottom Line: Your Lender Won’t Ignore Foundation Issues, And Neither Should You

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 won’t be quite so accommodating.

It’s important to remember that other houses are out there – with nice, solid foundations – that you’ll find just as dreamy. In the end, you’ll probably be grateful the inspector found the problem and that you dodged a costly nightmare.

If it’s been some time since you started house hunting, you might need to get your initial approval renewed before making your next offer. Get approved online to restart your home search.