The Mortgage Guru

Q: We are having trouble selling our home because it is not connected to the local sewer system. We have already lost one sale to an FHA buyer. We don’t want to connect to the sewer because it would cost us several thousand dollars. Our septic system works fine. Is there any way we can get around this, or is it an FHA rule that all homes must be connected to the sewer?

A: Under FHA regulations, any home located in an area where there is a nearby public sewer line that is ready for hook-up must connect to the sewer system in order to qualify for an FHA loan. Unfortunately, there is no way around this rule. You basically have two choices: 1) Spend the money to connect to the sewer system. 2) Sell your home only to buyers who are using a “conventional” loan. Banks and mortgage companies typically do NOT require homes to connect to a public sewer system as long as the septic tank is legally zoned and in proper working order.

The good news is that the housing market is very hot right now in most areas, so you should not have much trouble finding a buyer who is qualified for a conventional mortgage.
For home sellers in areas where connection to a public sewer system is not an option, it’s important to know that septic systems are handled differently under government loans than under conventional loans. Government loans require an on-site health inspection of the septic tank by the local health authority or a state-licensed engineer. This health inspection must be performed regardless of whether the septic tank has recently been pumped and inspected by a septic service company. It can sometimes take a week or two to get a health department inspector out to the property, so if you are selling a home with a septic system to an FHA buyer, be sure to order a health inspection as soon as possible. If you are selling to a buyer using a conventional loan, you generally do NOT have to have an on-site inspection as long as the septic tank has been pumped within the past 3 to 5 years. A copy of a receipt from a septic service company is sufficient documentation. If you haven’t had your septic tank pumped, you may have to have the tank inspected and/or pumped prior to closing on the sale of your home. However, some septic engineers argue that if the septic system is functioning properly, pumping the septic tank can actually do more harm than good because it may disrupt the delicate bacterial balance that is crucial to the proper treatment of human waste.

Since most homes in the Puget Sound region are connected to sewer systems, home buyers venturing into rural and semi-rural areas may not be familiar with septic systems and how they operate. It’s a good idea to get as much information from the sellers as possible before finalizing a purchase and sale transaction. However, be very careful how you handle this negotiation. A couple years ago, I had a mortgage client who lost their dream house because they demanded that the sellers pump their septic system as a condition of their purchase offer. Technically, this constituted a “counter-offer” to the seller, which effectively terminated their original purchase offer. That opened the door to other buyers who had previously made a back-up offer to purchase the home. The sellers decided to accept the back-up offer rather than settle on the septic tank issue with my clients. As a result, my clients ended up losing out on a home that they dearly wanted because of a misunderstanding and miscommunication over the septic tank issue. They did NOT want to cancel their purchase offer, they merely wanted assurance from the seller that the septic system was legal and in good working order. This is slightly off-topic, but the point is that home buyers must read their purchase and sale agreements very carefully to know what their rights are before making changes or alterations to their original purchase offer.