Uninsurable Property

Uninsurable property is a home that is not eligible for Federal Housing Administration (FHA) insurance because it requires extensive repairs. An uninsurable property is typically ineligible for FHA financing; however, in some cases, the individual purchasing the home may be eligible for alternative FHA financing options.

Uninsurable property can also refer to any real estate or other personal property that an insurer refuses to cover.

Understanding Uninsurable Property

FHA insurance and mortgages have specific requirements regarding the condition of the property in the transaction. If the repairs required to meet those requirements exceed the FHA's limit, the property will be rejected from the program. Housing repairs may be required due to damage from fires, storms, or aging that has caused parts of the property to fall below standards.

How Uninsurable Property Is Treated by Private Sector Insurers

Other insurers, besides FHA, may refuse to insure a property due to specific items that must be tended to, such as trees that are dead or pose a risk of collapse on the property and must be removed. Exposed and outdated wiring, as well as other infrastructure issues, could lead to a denial of coverage by an insurer. The presence of a swimming pool may pose a problem that insurers may refuse to cover unless the property includes features such as a fence to enclose and secure the pool from intruders.

An inspector will assess the property during a home inspection in conjunction with a sale, but it may still be necessary to ask direct questions about the insurability of the housing as well as any issues that stand out. If a homebuyer does not pay attention to such risky possibilities, they may find themselves in a deal for a property for which they cannot obtain insurance. If the property owner intends to make repairs to bring the property into compliance, policies that cover the presence of workers who will be on the property to make those repairs may be available.

Homes owned by the Department of Housing and Urban Development (HUD) must be appraised and inspected before they can be put up for bid. The homes are typically classified as insurable, insurable with repair escrow, or uninsurable. Any HUD home that is uninsurable will almost always require non-FHA financing. However, in some cases, HUD will finance the purchase of an uninsurable property through its FHA 203K loan financing program. These are rehab mortgages, which include the cost of repairs in the loan. Because of their condition, these homes typically sell at a significant discount and are not available through conventional financing.