Lender Rules For Termite Clearance

By Kurt Real Estate Nov 23, 2019

In 2015, CAR forms eliminated the reference to pest inspection reports from the RPA; which in turn has often created problems between the buyer & seller at the 11th hour of closing, because most lenders want a termite clearance regardless of what the RPA says.
So here’s the “hard and fast rules” as per each investor type:

VA Loans

All properties must have a termite inspection & completed repairs before COE. No Exceptions!

FHA and Fannie / Freddie Loans “Are a Little More Nuanced”

If an appraiser “notes termite issues” OR if the appraiser “doesn’t comment” about termite issues (which is usually the case since appraisers are neither licensed, bonded, or indemnified against any future legal action)an inspection is usually required by the lender before COE. The portion of the standard appraisal format where termite issues are addressed are contained in either the comment section at bottom of page 1, or at the bottom of page 2.

If the appraiser inspects the property & concludes (i.e. “goes out on a limb”) there is no termite damage then no termite inspection is required(“you pass GO” & collect a commission).

Even if buyer & seller agree to waive the termite inspection the lender will require a “termite inspection waiver” signed by both buyer and seller.

Note: Have the loan officer submit “the waiver” to the lender when the loan is first submitted, better to remove any doubt the termite issue is resolved. Otherwise there’s a risk having an underwriter “calling out a termite inspection just “as a matter of routine”, then a termite issue may arise, causing a last minute squabble between buyer & seller!

Conventional Loans w/ Less than 20% Down –

PMI companies routinely require a termite inspection and work to be completed if its more than a $1000 in repairs.

If a buyer is writing a conventional offer with less than 20% down; its prudent to get the inspection and address any repair costs, before this issue “raises it’s ugly head” just before COE.