Individual water systems no longer require automatic testing or inspection unless such testing or inspection is mandated by the state or local jurisdiction; it is believed that the water may be contaminated or when the water supply relies upon a water purification system due to the presence of contaminants.
However, if the county or state is supplying public water to the surrounding area, HUD’s guidelines require borrowers to stop using their well and to connect their home to the public water system.
FHA guidelines require the use of public water if it is available. Some borrowers have had an issue with that requirement and decided either not to get the loan or bite the bullet and hook up the city water.
HUD will waive the requirement if the cost to connect a home to the public water system exceeds 3 percent of the FHA maximum claim amount. If the cost is less, the borrower must pay for the hook-up, using their own funds or some of the reverse mortgage proceeds.
If the well water is safe for drinking, the hook-up to public water may be done after closing. In this case, funds to cover the cost of the hook-up will be set aside from the borrower’s reverse mortgage proceeds in a repair escrow account.