Knob and Tube Wiring: What is it? How Can it Affect a Home Loan?
What is Knob and Tube Wiring?
Knob and tube wiring pre-dates circuit breakers and fuse boxes.
Knob and tube wiring uses copper conductors, porcelain insulating tubes and knob insulators, which are nailed into place (Wikipedia).
It dates back to the 1880’s, and was “widely used through the 1930s,” according to Electrical Service Pros. In the state where we are home searching, Massachusetts, knob and tube, or K&T was even used through the late 1950s, according to Electrical Service Pros.
In one Massachusetts house the electrical was so old and outdated that there were not even any electrical outlets in the walls. The outlets were part of any lights that were in the walls.
Being a high electricity family we knew that this system would have to be updated to circuit breakers if we were to move into the house. However we are not even going to pursue this home that we could update with some extra money and work. Because of the knob and tube wiring in this Massachusetts house, we will not be able to acquire the needed home insurance and the the subsequent home loan.
Home Loans and Knob and Tube Wiring
In some areas with older houses for sale, including Massachusetts, buyers may not be able to get a home loan on houses with knob and tube wiring. There are a couple of ways that knob and tube wiring can affect a home buyer and a seller.
Insurance
With a mortgage you also need home insurance. It can be difficult to receive home insurance on an older home with knob and tube wiring. Without that insurance the bank where you were pre-approved probably won’t loan you the money for the house.
Some insurance companies will not insure a house unless the knob and tube wiring is replaced, according to Old House Web. This means that the onus to update the knob and tube wiring should be on the home seller.
Home owners who are trying to sell houses with knob and tube wiring may have a difficult time finding a buyer unless that buyer is an investor or someone else with cash who does not need a home loan.
VA Loans
According to the Veteran’s Administration, the ability to procure a VA home loan on a house with knob and tube wiring depends on the “local authority.”
Because each locality has its own rules, trying to procure a VA home loan on a house with knob and tube wiring may not be a problem for you. You need to check with your bank where you have pre-approval.
Where we live in Massachusetts, with our bank, we were told by our mortgage lender that we would “have trouble” getting the VA loan on a house with knob and tube wiring.
Had we really wanted the house, we could have used a First Time Home Buyer’s loan instead of the VA loan. The problem is that the loan came with a higher interest rate. Plus, the insurance may still have been a roadblock to the mortgage.
The existence of knob and tube wiring is going to keep older houses on the market longer. Although home buyers may like everything else about the house, the inability to get home insurance, and a subsequent mortgage, will cause them to scratch the house off the maybe list and move on to the next house.
Sources
Guidelines from our bank
Old House Web, http://www.oldhouseweb.com/stories/Detailed/14214.shtml
U.S. Veterans Affairs Department, http://www.homeloans.va.gov
Personal Experience
Wikipedia.org
