FHA Guidelines: Underground Oil Tanks

Buying a home is exciting — but also full of paperwork, inspections, and guidelines. If you're using an FHA loan, there are specific rules you need to know, especially regarding underground oil tanks.

This guide explains how underground storage tanks affect your loan, what the FHA guidelines say, and how to handle problems without risking your home purchase.

Now that you know why underground tanks matter, let's look at what the FHA expects.

What’s the Big Deal with Underground Oil Tanks?

Old oil tanks buried in yards can leak, contaminate soil, and cause environmental hazards. The FHA avoids toxic surprises.

That’s why the agency has rules. Any tank—abandoned or active—can make your property subject to extra scrutiny and could jeopardize your loan approval.

So before you ask “should I buy a house with an underground oil tank?” — You need the full picture. Let’s get into the specifics.

FHA Rules for Stationary Storage Tanks (Above-Ground)

Wait, above-ground tanks matter too? Yes, absolutely. The FHA is concerned about any large tank that stores flammable or explosive materials, whether above ground.

Here’s the rule: The property does not qualify for FHA insurance if the property line is 300 feet or less from an above-ground, stationary storage tank that can hold 1,000 gallons or more of flammable or explosive material.

The appraiser must notify your lender if the property doesn't meet Minimum Property Standards or Requirements. This can pause your loan until it is resolved.

Oil or Gas Wells: Operating, Proposed, and Abandoned

Oil and gas wells are another big consideration. The appraiser won’t just look at the house — they’ll measure distances and search for any visible signs of a well.

What happens if a home is within 75 feet of a well?

If the residence is within 75 feet of an existing or proposed oil or gas well, the appraiser must tell your lender (the mortgage company) about the MPS or MPR inadequacy. The distance is measured from the residence to the property boundary, not just to the well. (MPS and MPR refer to FHA's basic safety and livability standards.)

For new construction, if the home is within 75 feet of an active gas or oil well, the lender must reject the property until mitigation steps to address and reduce the risk are completed. No exceptions.

What about abandoned oil or gas wells?

If the appraiser finds an abandoned well on the property or a nearby property, they must immediately inform the lender. This situation cannot be ignored.

Work resumes only after the lender gets a letter from state or local authorities certifying the well was safely and permanently abandoned.

Strong reminder: If the property has any abandoned petroleum product wells, your lender must guarantee that a competent petroleum engineer has examined the property and assessed the risk. State authorities must also approve the clearance recommendations.

And if an underground tank has been abandoned? Workers must either physically remove it or properly abandon it in accordance with all relevant removal regulations and recommendations. No shortcuts.

Dangerous Gases: Hydrogen Sulfide from Wells

Gaseous hydrogen sulfide from petroleum wells isn’t just a smell—it’s dangerous and poisonous.

Before the FHA—Federal Housing Administration—will move forward, a petroleum engineer (an expert who evaluates oil and gas sites) must evaluate the danger. State authorities must agree on clearance recommendations for public health, safety, and petroleum sector regulation. Only then can a minimum clearance from sour gas wells (which emit hazardous hydrogen sulfide) be set.

Your lender must request and provide proof of the required clearance. The appraiser can only assess the property after this proof is received.

Summary: FHA Loans and Underground Oil Tanks — Your Game Plan

An underground oil tank can affect your FHA loan approval. Handle it properly, and it doesn’t have to derail your deal.

Here’s what smart buyers do:

• Schedule a professional tank sweep or soil test before making an offer.
• If a tank is found, get quotes for removal or proper abandonment.
• Work with your lender to provide all necessary documentation from state authorities and certified engineers.
• Understand FHA requirements for underground storage tanks so you’re not caught off guard.
• Also check Fannie Mae guidelines for underground oil tanks if you’re comparing loan types — they have similar but slightly different rules.

Stay informed and work with your lender and agent to navigate these issues. Always inspect tanks and get expert approval.

Following these steps puts you in a strong position to close your loan and move into your new home with confidence.

Frequently Asked Questions

Can I still get an FHA loan if there’s an underground oil tank on the property?

Yes, it’s possible — but you’ll likely need to address the tank first. That usually means removing it or properly abandoning it, as required by state regulations. You’ll also need documentation from a qualified professional and approval from the relevant state authorities. Your lender will require proof before signing off.

FHA requires any abandoned underground tank to be fully removed or properly abandoned in accordance with all local and state rules. A petroleum engineer may need to certify that there is no ongoing risk.

It depends. If the seller removes the tank and provides clearance, it can work. If the tank leaks or the seller won’t address it, you should walk away. Always get a professional inspection first.

Do FHA guidelines for underground oil tanks differ from conventional loan rules?

Yes, they differ in some details. FHA tends to be stricter about environmental hazards. For example, Fannie Mae guidelines for underground oil tanks also require proper removal or abandonment, but FHA has more rigid appraisal hold requirements and notification rules. Always check with your specific lender.

It’s negotiable. Buyers often ask the seller to remove the tank and clean any contaminated soil before closing. Sometimes buyers handle it, but that’s riskier. Always do a professional survey and get agreements in writing.