🏠 Bank‑Required Inspections:

FHA, VA, Conventional & Fannie Mae

Understanding Phase 1, Phase 2, and Phase 3 Inspections

Before diving into each loan type, it helps to clarify what “Phase 1, Phase 2, Phase 3” means.

These are NOT federal terms—they are Texas builder/inspector workflow terms used by lenders to verify construction quality before approving a mortgage.

🔧 Texas Construction Inspection Phases (General Definitions)

PhaseWhat It CoversPurpose
Phase 1 – Pre‑Pour / Foundation InspectionSoil preparation, formwork, reinforcement, post‑tension cables, plumbing rough‑inEnsure the foundation is structurally compliant before concrete is poured
Phase 2 – Pre‑Drywall / Framing InspectionStructural framing, roof decking, mechanical rough‑ins (HVAC, plumbing, electrical), window/door installation, WRB, flashingVerify structural integrity and building envelope before insulation and drywall
Phase 3 – Final InspectionFull home inspection after completion: systems, safety, code compliance, functionalityConfirm the home is complete, safe, and ready for occupancy

Now, what each loan type requires at each phase.

🟦 1. FHA Loan Requirements

FHA = Federal Housing Administration

FHA follows HUD Minimum Property Standards (MPS) and HUD Handbook 4000.1.

Phase 1 – Foundation

  • Inspector must verify compliance with HUD MPS and local building codes.
  • Special attention to:
    • Reinforcement placement
    • Post‑tension cable layout
    • Proper compaction and drainage
  • FHA may require a HUD‑approved engineer’s certification if the foundation deviates from standard practice.

Phase 2 – Pre‑Drywall

  • FHA requires confirmation that:
    • Framing meets structural standards
    • Electrical, plumbing, and HVAC rough‑ins comply with code
    • Fire‑blocking and draft‑stopping are properly installed
    • Weather‑Resistant Barrier (WRB) and flashing are correctly integrated
  • Any deficiencies must be corrected before drywall installation.

Phase 3 – Final

  • FHA requires the home to meet:
    • HUD MPS (Housing and Urban Development – Minimum Property Standards)
    • Safety and habitability standards
    • Functionality of all systems
  • The inspector must confirm:
    • Appliances operate
    • HVAC is functional
    • Hot water is available
    • No health/safety hazards exist
  • Lender may require a 1004D Final Inspection to certify completion.

🟥 2. VA Loan Requirements

VA = Department of Veterans Affairs

VA follows VA Minimum Property Requirements (MPRs) and focuses heavily on safety, structural soundness, and habitability.

Phase 1 – Foundation

  • VA requires the foundation to be:
    • Structurally sound
    • Free of settlement risks
    • Built according to engineered plans
  • For new construction, VA often requires:
    • Builder certification (formal statement from the builder)
    • Engineer’s foundation letter (formal written certification from a licensed professional engineer (PE))

Phase 2 – Pre‑Drywall

  • Inspector must verify:
    • Structural framing integrity
    • Proper installation of mechanical rough‑ins
    • Adequate moisture protection (WRB, flashing, roof underlayment)
  • VA is strict about:
    • Termite protection
    • Moisture intrusion prevention

Phase 3 – Final

  • VA requires:
    • Full compliance with VA MPRs
    • All utilities operational
    • No safety hazards
    • Proper grading away from the structure
  • A VA Compliance Inspection Report (Form 26‑1839) may be required.

🟩 3. Conventional Loan Requirements

Conventional loans (non‑government) follow Fannie Mae or Freddie Mac guidelines (Freddie Mac stands for the Federal Home Loan Mortgage Corporation (FHLMC). It is a government‑sponsored enterprise (GSE) created by Congress in 1970 to support the U.S. housing finance system.) depending on the lender.

Phase 1 – Foundation

  • Inspector verifies:
    • Compliance with local building codes
    • Structural adequacy
    • Proper reinforcement and plumbing rough‑in
  • Engineering certification may be required if the design is non‑standard.

Phase 2 – Pre‑Drywall

  • Lenders want assurance that:
    • Framing is structurally sound
    • Rough‑ins meet code
    • Building envelope is properly sealed
  • Some lenders require a third‑party inspection report for risk mitigation.

Phase 3 – Final

  • Conventional loans require:
    • A complete, functional home
    • No major defects
    • All systems operational
  • Typically documented using:
    • Appraisal Form 1004D (Completion Report)
    • Or a third‑party final inspection report

🟨 4. Fannie Mae (New Construction)

Fannie Mae = Federal National Mortgage Association (FNMA)

Fannie Mae has specific requirements under Selling Guide B4‑1.2‑03.

Phase 1 – Foundation

  • Inspector must confirm:
    • Foundation built per plans
    • Compliance with local code
    • Proper drainage and site preparation
  • If the foundation differs from plans, an engineer’s certification is required.

Phase 2 – Pre‑Drywall

  • Fannie Mae requires verification of:
    • Structural framing
    • Mechanical rough‑ins
    • Weatherproofing and flashing
  • Lenders often require a third‑party inspector to reduce construction risk.

Phase 3 – Final

  • Fannie Mae requires:
    • A completed home meeting all local codes
    • Operational systems
    • No health/safety issues
  • Appraiser must complete:
    • Form 1004D to certify completion
  • If the home is newly built, a Certificate of Occupancy (CO) is mandatory.

🏗️ Combined Comparison Chart

Organized by Loan Type

🧩 Authorized Inspectors for Each Loan Type

Loan TypeWho Performs Phase 1–3 Inspections
FHATREC‑licensed inspectors, HUD‑approved fee inspectors, ICC‑certified inspectors, licensed engineers (if needed), appraiser only for final 1004D
VATREC‑licensed inspectors, VA‑approved compliance inspectors, licensed engineers (foundation), appraiser sometimes for final
ConventionalTREC‑licensed inspectors, independent third‑party inspectors (includes ICC inspectors, engineers, private inspection firms), appraiser for 1004D
Fannie MaeTREC‑licensed inspectors, independent third‑party inspectors, licensed engineers (if deviations), municipal inspector (CO), appraiser for 1004D
Freddie MacTREC‑licensed inspectors, independent third‑party inspectors, licensed engineers (if deviations), municipal inspector (CO), appraiser for Form 442 (Freddie Mac’s version of the 1004D)

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