Appendix 8.0 – FHA Defect Taxonomy (01/15/2025) Handbook 4000.1 1804 Last Revised: 11/26/2025 Defect Area 5 Property Eligibility (PE) Minimum property acceptability and eligibility standards for FHA insurance, including program and product-specific variations. HUD Policy References – Handbook 4000.1 Forward HECM Property Eligibility and Acceptability Criteria Legal Restrictions on Conveyance (Free Assumability) Property Acceptability Criteria Mortgagee Closing Requirements Inspection and Repair Escrow Requirements for Mortgages Pending Closing or Endorsement in Presidentially-Declared Major Disaster Areas Programs and Products Application of Minimum Property Requirements and Minimum Property Standards by Construction Status Minimum Property Requirements and Minimum Property Standards Property Acceptability Criteria Inspection and Repair Requirements for HECMs Pending Endorsement in Presidentially-Declared Major Disaster Areas HECM For Purchase Condominiums Application of Minimum Property Requirements and Minimum Property Standards by Construction Status Minimum Property Requirements and Minimum Property Standards Sources 1. Property Acceptability and/or Eligibility 2. Minimum Property Requirements / Minimum Property Standards 3. Flood Certification and/or Special Flood Hazard Area Requirements 4. Manufactured Housing 5. Legal Restrictions on Conveyance (Free Assumability) 6. Property Ownership and/or Transfer History 7. Condo – Project Approval or Loan Level Certifications 8. Program & Product Specific Property Eligibility Requirements 9. Presidentially Declared Major Disaster Area Requirements 10. Other Property Eligibility Issues Causes A. Missing, illegible, or incomplete documentation to support acceptability or eligibility B. Unallowable Property Type, Use, and/or Zoning C. Repairs or Rehabilitation not complete and/or inspections not properly documented D. Restrictions on Resales/Flipping and/or owner of record requirements not met F. Evidence of Fraud or Misrepresentation

A. Title II Insured Housing Programs Forward Mortgages 3. Underwriting the Property Handbook 4000.1 181 Last Revised: 11/26/2025 3. Underwriting the Property The Mortgagee must underwrite the completed appraisal report to determine if the Property provides sufficient collateral for the FHA-insured Mortgage. The appraisal and Property must comply with the requirements in Appraiser and Property Requirements for Title II Forward and Reverse Mortgages. The appraisal must be reported in accordance with Acceptable Reporting Forms and Protocols. a. Property Acceptability Criteria (06/27/2025) The Mortgagee must evaluate the appraisal and any supporting documentation to determine if the Property complies with HUD’s Property Acceptability Criteria. Existing and New Construction Properties must comply with Application of Minimum Property Requirements and Minimum Property Standards by Construction Status. i. Defective Conditions The Mortgagee must evaluate the appraisal in accordance with the requirements for Defective Conditions. When defective conditions exist and correction is not feasible, the Mortgagee must reject the Property. The Mortgagee may only approve a Property after the Mortgagee confirms that all defects reported by the Appraiser have been corrected. ii. Minimum Property Requirements and Minimum Property Standards As the on-site representative for the Mortgagee, the Appraiser provides preliminary verification that a Property meets the Property Acceptability Criteria, which includes HUD’s Minimum Property Requirements (MPR) and Minimum Property Standards (MPS). Minimum Property Requirements refer to general requirements that all homes insured by FHA be safe, sound, and secure. Minimum Property Standards refer to regulatory requirements relating to the safety, soundness, and security of New Construction. When the Appraiser’s observation of a Property reveals noncompliance with the Property Acceptability Criteria, the Appraiser must note all repairs necessary to make the Property comply with HUD’s Property Acceptability Criteria, together with the estimated cost to cure. If the Appraiser cannot determine that a Property meets HUD’s MPR or MPS, the Mortgagee may obtain an inspection from a qualified entity to make the determination. Mortgagees must use professional judgment in determining when inspections are necessary to determine that a property meets MPR or MPS. Mortgagees must also use professional judgment in determining when a Property condition poses a threat to the health and safety of the occupant and/or jeopardizes the soundness and structural integrity of the Property, such that additional inspections and/or repairs are necessary.