The inspection report on the four unit comes back mostly boring, which is what you want. Two GFCI outlets, a slow drain, a downspout discharging against the foundation. Then on page eleven there is a photograph of a floor joist in the crawl space with a section that looks carved out with a spoon, and a line that reads evidence of past or present subterranean termite activity, recommend evaluation by a licensed pest control operator.
You are twenty-two days from closing on a purchase at 218,000 dollars with rents of 725, 700, 700, and 675. The ratio was 1.31. Now there is a photograph of a chewed joist in your file and your processor wants to know if you have a clear WDI report.
This is not rare. In most of the eastern United States it is routine. What decides whether it costs you nine hundred dollars or nine thousand is what you do in the next ten days.
We are a Pittsburgh-based mortgage brokerage, NMLS #1840537, and we place rental and fix and flip loans for real estate investors across Pennsylvania and additional states. This is how wood destroying insect findings actually move through an investment property loan file, what lenders require and do not require, and how to keep a treatable condition from becoming a repair escrow or a repriced deal.
What a WDI report is and who asks for one
A wood destroying insect report, often called a WDI report or a termite letter, is a standardized inspection by a licensed pest control operator. The industry standard form is the NPMA-33, and it reports visible evidence of subterranean and drywood termites, carpenter ants, powderpost beetles, and wood decay fungus, plus conducive conditions and evidence of prior treatment.
The important thing about the form is what it is not. It is not a structural report and it is not a repair estimate. It records observations of visible and accessible evidence. Whether that evidence represents active infestation, old damage treated in 1998, or a joist that needs sistering is a separate question answered by different people.
Who requires one varies by loan type, and this is where investors get bad information. A WDI report is commonly required on VA loans in most states, with the requirement and who may pay for it varying by jurisdiction, and is frequently required on FHA and USDA files. On conventional, rental, and fix and flip loans it is not required by rule on most programs. It is required in practice whenever the appraiser reports evidence, which converts the appraisal into a subject to condition.
Read that pattern carefully, because it is the whole mechanism. On an investor loan the termite question almost never starts with the lender asking. It starts with the appraiser seeing something and writing it down. Once it is written down, it cannot be unwritten, and the file will not clear until it is addressed.
The appraisal is the trigger
An appraiser is not a pest inspector and is not required to crawl a crawl space. What an appraiser must do is report observed conditions affecting the condition rating, marketability, or safety and soundness. Visible tubes on a foundation wall, hollowed trim, frass, or a compromised sill plate all get reported. The appraisal is then delivered subject to inspection or subject to repair, and it is not usable for underwriting until the condition is resolved. Our post on an appraisal coming in subject to repairs covers the mechanics.
The related trap is the condition rating itself. Appraisers rate condition on a C1 through C6 scale, and structural damage from insects can push a property toward C5 or C6, which many rental programs will not lend on at all. Our post on appraisal condition and the C rating covers where those cutoffs sit. A little visible evidence rarely moves the rating. A joist you can push a screwdriver through can.
The distinction that decides the cost: active versus prior
Almost every argument about a termite finding is really about this distinction, and the report itself usually makes it if you read past the first page.
Evidence of prior infestation, no active infestation, no damage requiring repair. This is the most common finding on any house built before 1980 in a termite active region, and it is close to a non event. Many of these properties were treated decades ago and the mud tubes on the block are archaeology. Lenders generally accept a report stating no active infestation, sometimes with documentation of the prior treatment. Cost to you: the price of the inspection, typically one hundred to two hundred dollars.
Active infestation, no significant structural damage. Treatment is required. A licensed operator treats, issues a clear report or a treatment certificate, and the file moves. Liquid termiticide treatment on a typical single family runs roughly eight hundred to two thousand dollars depending on linear footage and construction type. Bait system installation is often less upfront with an annual monitoring cost. Cost to you: manageable, and frequently negotiable to the seller.
Damage requiring repair. This is the expensive branch. Sistering compromised joists, replacing a sill plate, rebuilding a section of subfloor, or repairing a load bearing post. Now you need a treatment and a repair, and often a structural evaluation to scope the repair. Cost ranges from a few thousand to well into five figures.
The report normally checks a box distinguishing these. If the language is ambiguous, get it clarified in writing before you negotiate, because the ambiguity always costs the buyer.
What it does to your loan and your ratio
Run the four unit.
Purchase 218,000 dollars, twenty-five percent down, loan 163,500 dollars. At seven and five-eighths percent on a thirty year amortization, principal and interest is about 1,157 dollars. Taxes at 4,100 dollars a year are 342 dollars a month. Insurance is 165 dollars. Total payment is 1,664 dollars. Gross rent is 2,800 dollars. Coverage is 2,800 divided by 1,664, or 1.68.
A twelve hundred dollar treatment does not touch that ratio. It is a one time cost at closing and it changes nothing about the loan.
That is the point worth internalizing. Unlike a flood premium or a master metered utility bill, a termite finding does not usually hurt your coverage ratio at all, because it is a capital item rather than a recurring expense. What it hurts is your closing date and your cash to close.
Where it does hit the ratio is the second order version. If the damage is significant enough that the appraiser reduces the value, your loan gets sized against a smaller number. Say the appraiser holds value at 218,000 with the repairs done but comes in at 205,000 as is. At seventy-five percent, your loan drops from 163,500 to 153,750 and you bring an extra 9,750 dollars to the table. The ratio actually improves because the payment is smaller. Your cash position does not. Run both versions in our deal calculator so you know what you are arguing about before you call the seller.
The three ways it gets resolved before closing
Seller treats and repairs before closing. Cleanest for the loan. The work gets done, the operator issues a clear report, the appraiser signs a completion certification. It requires a cooperative seller and enough calendar. On a thirty day contract that is achievable for treatment and usually not for structural repairs.
Seller credit and you handle it after closing. Faster, and the wrong tool more often than investors think. A credit can only be applied to closing costs and prepaid items, not to repairs, and it sits inside the interested party contribution cap. More to the point, a credit does not satisfy an appraisal delivered subject to repair. The appraiser required the condition to be cured, and money in your pocket does not cure it. Our post on seller concessions and how they change your cash to close covers the caps and the structuring, and it is worth reading before you agree to a credit that will not do the job you need it to do.
Repair escrow. The loan closes, an amount is held back at settlement, the work is done post closing on a deadline, and the funds release on reinspection. This is the tool built for exactly this situation. Holdbacks are commonly set at one hundred to one hundred fifty percent of the bid, with a completion deadline typically measured in weeks. Not every program allows one and not every condition qualifies. Our post on repair escrows covers what qualifies and how the money comes back out.
On a flip, it is a scope question rather than a loan question
Fix and flip files handle this more easily, because the loan already contemplates poor condition. If your scope includes the affected area, a termite finding is a line item in a budget you were already submitting. Treatment is a soft cost, joist sistering is framing labor and material, and the lender funds it through your draws. The thing to get right is that it belongs in the budget at origination. Discovering it in week three means a change order, and our post on change orders and adding scope mid rehab covers why that is slower and more expensive.
Three flip specific points. First, get the crawl space and the sill plate inspected before you set your budget. On older housing stock the sill plate and band joist are where subterranean termites do their work, and they are the parts nobody looks at during a walkthrough. Our post on knob and tube, fuse panels, and aluminum wiring makes the same argument about a different system: the expensive surprises on pre war housing stock are behind finished surfaces.
Second, structural repair usually means a permit, a permit means an inspection, and both sit on the critical path for your draws. Our post on permits as a funding condition covers how that stalls money.
Third, remember your exit. If your buyer uses government backed financing they will very likely need a clear WDI report themselves, which means the treatment and repair have to be done and documented regardless of what you think of the finding. Keep the certificate and the invoices with the property file.
Conducive conditions, which is the part nobody fixes
Most WDI reports include a section on conducive conditions, meaning things about the property that invite the problem back. Wood to earth contact on porch posts or deck framing. Mulch or soil piled above the siding line. Firewood stacked against the foundation. A crawl space with standing water or no vapor barrier. Downspouts discharging at the foundation. Wooden form boards left in place from the original pour.
These are cheap to correct and they are the difference between one treatment and a recurring problem. A vapor barrier and regrading a downspout is a few hundred dollars. A second infestation in four years is another treatment plus whatever it ate in the meantime. On a rental you intend to hold, this is one of the better dollars you will spend, and it usually gets skipped because nobody sees it and no tenant will pay more rent for it.
The bond and why it is worth asking about
Many treatments come with a termite bond, a service agreement from the pest control operator that includes periodic reinspection and, depending on the contract, retreatment or repair of new damage.
Two things matter. Bonds are frequently transferable to a new owner, sometimes for a modest transfer fee, so ask the seller whether one exists before you commission a new treatment on a house already under contract. And there is a real difference between a retreatment bond, which pays to treat again, and a repair bond, which pays to fix new damage. The second is meaningfully more valuable and more expensive. If a bond exists, get the contract, the transfer paperwork, and the inspection history.
The offer stage checklist
Order the WDI inspection at the same time as your general home inspection, not after, because both findings feed the same negotiation. Ask the seller for prior treatment records and any existing bond, and ask specifically about the crawl space and the sill plate on anything older than 1970.
If the report shows evidence, get the active versus prior distinction in writing before you negotiate. If it shows damage, get a structural opinion and a written repair bid, because you cannot escrow against a number you do not have.
And build the timeline honestly. Treatment can be scheduled in a week. Structural repair, a permit, and a reinspection is a month. If your contract does not have that month in it, ask for an extension before you are asking under pressure.
Older housing stock is where the yields are, in Western Pennsylvania and in most of the markets we lend in. We finance rentals and flips for investors across the region and additional states, and the properties that produce the best coverage ratios are frequently the ones with a crawl space, a sill plate, and eighty years of history. That is a feature of the asset class, not a defect in your deal.
How we handle it
When a WDI finding lands in a file we are working, the first thing we do is read the report rather than react to the word termite. Prior evidence with no active infestation and no damage clears with a letter most of the time and should not cost you a day. If it is active, we want a treatment scheduled and a certificate in the file. If there is damage, we want a bid before anyone talks about who pays, and we want to know early whether the program allows a repair escrow, because that single answer decides whether the deal closes on time or moves three weeks.
The mistake we see most is silence. An investor gets the report, decides it looks bad, and spends a week deciding what to do before telling anyone. That week is the entire margin.
Inspection requirements, report standards, treatment methods and pricing, repair escrow availability, appraisal condition ratings, and program guidelines vary by lender, property, jurisdiction, and borrower profile, and are subject to change without notice. This is general information for real estate investors, not a loan commitment, a rate quote, a repair estimate, legal advice, or tax advice. Figures used above are illustrative.
If you have a WDI report you are not sure how to read, reach out or call 412-990-2941. Our DSCR rental loan page covers the product, and if the down payment on the replacement deal is coming out of equity elsewhere, our post on funding a down payment from a HELOC or a cash out refinance runs the math both ways.
FMC Capital, NMLS #1840537. This article is general information for real estate investors and is not a loan commitment, a rate quote, or financial advice. Loan terms, pricing, and requirements vary by lender, property, and borrower, and are subject to change. Call 412-990-2941. Equal Housing Opportunity.