Hi, I just looked it up and as much as I want to tell you they're wrong, I believe they are correct. In Chapter 12, Section 8, the VA Lender's Handbook basically states the well must be able to pass on its own.
However, if you can provide a letter from the local health authority a copy of the health department letter confirming the aquifer contamination and evidence that all of the requirements in HUD Mortgagee Letters 92-18 and 95-34, concerning individual water purification systems, have been met for the property,
and, the veteran purchaser's written acknowledgment that he/she understands that the well water serving the property must be continuously treated by the homeowner, as required by the local health department, to be considered safe for human consumption.
Letter 92-18 is missing from here:
1992 Mortgagee Letters
Letter 95-34 is here:
http://portal.hud.gov/hudportal/docu...=DOC_16735.txt
So, what you do is reply to their processor, that it is your understanding if the health department signs off on the well in a letter
and,the Veteran acknowledges he will be responsible for treating the well as long as he owns the home and he still wishes to purchase the property, you may move forward.
But you are in a tough place. This well will never pass a VA, USDA, or FHA water test. You represent the seller, who must disclose this to any future homebuyer if this one walks away....and the Veteran can. All contracts, appraisals and loan commitments favor our Armed Forces.
You can find the Lender's Handbook here:
Lenders Handbook - VA Pamphlet 26-7 - Web Automated Reference Material System
Good luck