Is Peeling Paint Killing Your FHA Loan?

I recently did an inspection for an appraisal on an FHA refinance loan.  It was an older home that had been undergoing some updates and renovations.  One of the biggest   problems I see on older homes, and one which this home had, is peeling and chipping paint.  This is not an issue with conventional loans (unless it is a specific investor requirement), however it can be a deal breaker with FHA loans.  If it doesn’t kill the deal it can at least delay the closing.

Peeling and chipping paint is a health risk and falls under the “Safety, Security, and Soundness” realm, which is why it is an FHA requirement for this condition to be corrected.  According to the U.S. Department of Housing and Urban Department (HUD) the general requirements are as follows:

“For all properties built before January 1, 1978, the appraiser must inspect ALL interior and exterior surfaces, such as walls, stairs, deck, porch, railing, eaves, windows, doors, fences, detached garages and other outbuildings and appurtenant structures for defective paint surfaces (i.e. chipping, peeling or flaking paint) and report defective conditions in the appraisal report.”

The appraisal would have to be done “subject to” the peeling paint being corrected.  It is important to know why the January 1, 1978 date is crucial.  Prior to this time paint was made with lead in it; and lead is toxic if it is ingested.  Because of this it must be removed per FHA guidelines. To find out the exact procedure to use you can go to the HUD website at, but the short version is this:  The paint must be properly removed from the surface AND totally cleaned up with no signs of it left on the ground.  The bare surface must then be repainted with a non lead based paint.  If this can be done before the appraisal inspection, it can save a lot of time and cost since the appraiser will not have to go back to the property to verify it has been done.  You can save yourself from a big headache by doing a little bit of pre appraisal inspection homework.


  1. Donna Fuller says

    I live in a 1985 manufactured home and the skirting around it is wood and we have started to repaint this and add lattice. We have two sides done and working on the others and also repainting the front and back decks. VA appraiser came and noted that we have chip paint on a couple of the sides of the home. The garage has vinyl siding on the front of it and the rest needs a paint job which is one of summer projects this year. The home otherwise is completely remodeled with new roof, new plumbing and electrical, new flooring, new appliances, new cabinets and vanities, new light fixtures, new furnace and she states “I could make you paint these remaining sides”…we are still awaiting her appraisal results

    • While I do not do VA appraisals I believe their requirements are similar to FHA. The peeling paint can be a safety issues, however, if the home was manufactured after 1978 there may be a chance that it is not. At any rate, we must still report the peeling paint and then it is up to the underwriter to make the decision as to whether it needs to be done.

  2. Scott Dault says

    I have been in the process of buying a building for the past 60 days. I am a first time home buyer, and the Real Estate Agent, nor the lender never once educated me to the fact that the Appraisel was going to be flagged for chipping paint. So far I am out $1225 and most likely I will have to withdraw my offer. My question is: Do I have grounds for a law suit based on the facts stated above?

    • FHA required repairs are definitely something that both lender and agent should be aware of, however, I am not sure of what your options are regarding a law suite.

  3. Cathy Kin says

    Ridiculous, we are doing a refinance. They are demanding repainting of a shed (clearly added in the 90’s), outside deck/steps that have clearly been painted in the last ten years. I know for a fact, that all the pealing paint was put on in the last ten years. I told them to kiss my ^^^. I just won’t be refinancing with WF. Honestly, it’s their loss, because if you have good credit then you can refi with another bank who doesn’t require an appraisal.

    • I have found that lenders do want all peeling paint removed and repainted no matter when it was put on. This practice is also moving over into conventional financing too. The only problem is that if you get an FHA loan you’ll have to fix it no matter what lender you go with since it is an FHA/HUD issue instead of the banks.

  4. Crystal Nanney says

    I have an FHA loan that is inches from closing–or was, thanks to its age. As a homebuyer, I’m angry that we’ve been doing this since August (203K loan) and 4 months later, my lender tells me she won’t close without my contractor’s painter producing the lead paint worker certificate. Well since no one around here enforces that, local painters haven’t bothered with it because it’s ridiculously expensive ($400 for the course, $310 for license, then another $300 for mandatory firm license). I don’t like interfering with my contractor’s choice in subs, but I had to throw a good man off the job to hire a stranger, whose price was higher (of course), forcing a new work write-up, and new loan docs. I’m all for safety, but we should have been informed of this garbage LONG ago. Please tell your banks to WARN THE BUYER as soon as they see the loan app with a subject property built before 1978.

    • Guidelines for removal of lead based paint changed recently. It became very strict for companies removing, however for individuals it was not a big change. Lenders should be aware of the guidelines so their customers can plan accordingly. Thanks for sharing.

    • Bill Baughn says

      Crystal, your real estate agent should have informed you of the possibility of problems due to the age of the home. People should keep this in mind for any home. They need to let buyers know of these things in the future…

    • Mary Thomas says

      Your not forced to get and FHA insured loan. You have other choices.

  5. Oh! This is perfect! Thanks for dispelling severalsome
    confusion I had heard regarding this lately.

    • Your welcome, there is a lot of confusion on this. I hope I have made it more clear.

      • But what if the house has already been scraped and painted subsequent to 1978? I have a deal where the house has been inteh family since it was built in 1978 and subequent to 1979 has scraped and repainted the house. The appraiser on the purchase happpening now notes peeling exterior paint and that it must be scraped and repainted. He is presuming that it has never been done since 1978. If sellers will provide an affidavit that the house was scraped and repainted since 1978 can we get around this FHA exception to closing the loan?

        • Joe,
          The affidavit would be helpful, however the appraiser is required to note the condition of the painted surfaces. A lot of times it is up to the loan underwriter to make the final call as to whether the affidavit is sufficient. I am not sure how much it is in your area, however you could get the paint tested to see if lead is present. Depending on the cost this may be the last resort. I would see if the affidavit is good enough, if not, compare the cost to repaint against the cost of testing the paint. Hope this helps.

          • Bill Baughn says

            As an appraiser, my job is to report what I see. My job is not to determine whether it is lead paint or not. That is the job of another expert. Take into consideration the age of the house, determines what comments go in the report. I used to have a CYA addendum that was four pages long. If I suspected anything it went into the addendum. I would suspect to say that 90% of underwriters and/or loan officers do not read our addendum’s. If they did, they would not ask for half the crap they want after they get their appraisal. Worst yet they will want you to alter your appraisal and remove all the negative comments from it (don’t you know it will kill their deal?)

          • I have had many underwriters that I wondered if they ever read the report because all their questions were answered within the report.

  6. Great post with great information. In my experience, chipping paint is the most common reason why one of my FHA appraisals is marked “subject to”.

    • Bryan,

      That is the same with me. I have had two recently, which has delayed both closings. Maybe with more info. out there this will cut down on this common problem.

      • Bill Baughn says

        Tom, if the house is built prior to 1978, the lender should be aware that it might have a potential problem. Standard comments alone will most likely send up a red flag that the house might have problems. Your appraisal did not delay the closings, the house did. All you did was report what you saw.


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