Getting Financing for Homes with Knob and Tube Wiring?

Knob and tube wiring in attic.
This is what typical knob and tube wiring looks like in an attic.

Chances are, if you are looking to buy or sell a house that was built between the 1880’s and the 1940’s somewhere in the home there is likely to be knob and tube wiring. The presence of out dated wiring can affect both buyers and sellers. Here’s why. The seller will contend with FHA policies that may prohibit mortgage insurance on homes containing knob and tube wiring, meanwhile this same policy will make it difficult for potential buyers seeking financing to follow through with the purchase. Normally what happens is either the seller or the buyer agree to pay for the removal of the old wiring and replace it with new wiring before the closing or soon afterwards. If it is agreed that the removal of the wiring is to be performed after the closing than funds may be held in escrow to ensure the cost is covered.

Remember, all FHA mortgages require a home inspection by a certified FHA inspector in order to generate an appraisal. The appraisal is to determine the value of the home and to ensure that it meets FHA criteria. The FHA is insuring your loan and would need to cover the loss if you were to default. If the home has knob and tube wiring and it is in poor condition and the appraiser catches it, they will require correction or replacement. Once the repairs are made an FHA inspector will need to sign off on it, at someone’s expense.

Another potential concern more for the buyer than the seller is the location of the old wiring. FHA inspectors locating knob and tube wiring in easily accessible areas may miss hidden knob and tube wiring, in wall cavities or beneath old insulation in attics. So if the home you are looking to buy is determined to contain this potentially dangerous wiring demand a thorough unbiased investigation of the entire home by a certified electrician. Depending upon negotiation, this would be paid for by either buyer or the seller. The presence of hidden knob and tube wiring is not something a new homeowner wants to discover after the closing.

So whether buying or selling, the presence of knob and tube wiring requires due diligence from all parties.

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