Home Inspection Basics

So many people have questions about home inspections, that I've asked Steve Nations, from Nations Home Inspections, to guest blog today.

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Americans love their homes. Whether it’s an old fixer-upper, new construction with all the amenities, or somewhere in between, most of us smile with pride when we talk about our homes. And why shouldn’t we? We spend more time at home than anywhere else and the time we spend at home is usually in the company of those we love the most. That’s why it is so important to go into your new home with your eyes wide open to all of its potential flaws and foibles. As we all know, knowledge is power and when we understand our homes we are certain to enjoy them more. That’s why all home buyers (and even existing home owners interested in a “tune-up” for their home) should have a professional home inspection.

A home inspection helps to identify problems in the house that may cost you money or be a safety hazard. Many of these problems will not be visible to you as you tour the house with your realtor. The inspector will take their flashlight and tools into the recesses of the house. Places you probably avoided on the tour like the attic and crawlspace and inside other accessible panels and covers. A professional home inspector has the knowledge and training to identify potential “money-pit” problems and point out the important maintenance items so you can also keep the home in good shape.

Another benefit of the knowledge gained through a home inspection is negotiation leverage. Armed with your inspection report, you may be able to negotiate a better price for the home. And, though fairly rare, sometimes a buyer will decide that the house’s flaws are just too many or too severe and will walk away from the deal. More often, there are no major problems and then the inspection simply provides some peace of mind for you as the deal moves forward.

Typically, a home inspector is hired immediately after the contract or purchase agreement has been signed. However, if you know you’ll soon be home shopping, I recommend you find an inspector before you sign so you have the time to find someone you trust. Realtors are always happy to make recommendations but I believe it is in your best interest to keep “church and state” separate in this process and find a home inspector that is not connected to your realtor. Be sure there is an inspection clause in the sales contract, making your final purchase obligation contingent on the findings of a professional home inspection. This clause should specify the terms and conditions to which both the buyer and seller are obligated.

When hiring an inspector there are some things to keep in mind. First and foremost is that you should expect the inspector to be your advocate and to have your interests be his (or her) primary concern. Be present at the inspection. You’ll get a lot more out of it if you’re there to see potential problems first hand. Your inspector should be accessible after the inspection and be able and willing to discuss the findings with you, put things in perspective, and offer advice. But don’t expect advice on whether or not you should buy the house; this is not allowed. In the end, the knowledge your inspector imparts is one factor in your purchase decision.

In Illinois home inspectors are licensed by the state, so be sure that your inspector is licensed. And your inspector should belong to a professional society, such as the American Society of Home Inspectors (ASHI), whose members are committed to the highest levels of professionalism as well as ongoing training to keep up with the latest in home inspection technology.

So, happy house hunting. I hope you find the home of your dreams!

Steve Nations is president of Nations Home Inspections, Inc., which serves the entire Chicagoland area. Steve has a master’s degree in Mechanical Engineering from Columbia University and brings an engineer’s natural curiosity to every inspection he conducts. Steve can be reached at 708-837-6972 or at steve@nationshomeinspections.com

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Down Payment Assistance Programs

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NOTE: RULES REGARDING DPAs HAVE CHANGED.
CLICK HERE FOR AN IMPORTANT UPDATE

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One of the biggest obstacles to purchasing a first home is accumulating the down payment. There are many families that have sufficient income to qualify for a mortgage, and an acceptable credit history, but lack the funds for the initial down payment and closing costs. Down payment assistance programs (DPA) are one solution to this problem.

With a DPA, a buyer receives a 'gift' from the DPA (which must be a non-profit corporation defined as a 501(c)(3) Corporation by the IRS). These gifts can cover all or part of the down payment and closing costs on an FHA mortgage.

All of the DPAs work in essentially the same way and have the same basic guidelines:

• The DPA must be a 501(c)(3) corporation


• The sellers of the property must agree to participate in the DPA and make a donation to the DPA in the amount of the gift plus a service fee out of the proceeds of the sale of the home.


• The buyers have to qualify and be approved for a program that allows these types of gifts funds such as FHA.


• The maximum amount of the gift may vary by program but they are usually between 3 to 6% of the sales price.


• Funds can be used for down payment and closing costs. If there are funds left over after the down payment and closing costs have been paid, these funds must be returned to the DPA.


• Sellers may not write off the amount of the gift, but MAY use it as a selling expense when completing their tax returns (Consult a tax professional for rules on this)

FHA is the primary financing used with DPAs, but there may be other programs that accept this type of gift for down payment.

Many people ask if HUD approves certain DPAs. The answer is, no. HUD does provide guidelines for using these programs, but the lender must ensure that the program conforms to the guidelines. Here are HUD’s guidelines on DPAs:

“HUD does not approve “gift” programs administered by charitable organizations and, thus, will not offer a formal approval of your program. Mortgage lenders are responsible for assuring that the gift to the homebuyer from the charitable organization meets the instructions in HUS Handbook 4155.1 REV-4, CHG-1 Paragraph 2-10(c) (e.g no repayment implied, etc.). Those charitable organizations that comply with existing regulations and policy guidelines are permitted to give cash gifts to eligible homebuyers and do not need prior FHA approval to do so.” Your lender can ensure that the DPA is acceptable.

DPAs exist because underwriting guidelines for FHA, and most other mortgage programs, restrict sellers from giving buyers money for their downpayment. Many people think that the sellers are giving the money to the buyer but by working with a DPA they are following the underwriting guidelines for FHA. One important distinction is that the funds that are given to the buyer from the DPA are sent to the title company prior to the loan closing. The sellers then make a donation to the DPA after the loan closes out of the proceeds of the sale of their home. These funds are then added to the pool if funds the DPA has to make future gifts.

Most people can see the benefit to the buyers – they can purchase a home with little or no money out of pocket. But, what are the advantages for the seller – aren’t they losing money by donation 3 – 6% of the sales price to the DPA (plus a service fee)? Well, there are a few things to keep in mind.

In most markets, sellers price their homes knowing they need some room for negotiating. Buyers seldomly offer the full price when purchasing a home. Sellers will usually settle for a sales price below their asking price and/or offer other concessions to the buyers (e.g. Paying points, paying closing costs, etc.).

When participating in the DPA sellers will accept an offer that is closer to the asking price than they would if they were not participating in the DPA. Therefore, they will still make about the same amount of money from the sale of their home. And, since there are now more people that can afford to purchase their home, they may be able to sell their house more quickly at a higher sales price. The buyers are protected against a sales price that is too high because the lender will order an appraisal on the property to make sure they are not lending money on a property that is worth less than what it is worth. It is truly a win-win situation.

Want to see if a DPA is right for you? Give me a call or send me an email. Or consult your own mortgage professional for a personal assessment.

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NOTE: RULES REGARDING DPAs HAVE CHANGED.
CLICK HERE FOR AN IMPORTANT UPDATE

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Is my mortgage company selling my name to mailing lists?

"Why do I get so many unsolicited credit offers as soon as I apply for a mortgage? Is my mortgage company selling my information?"

The answer to the second question is almost always, NO! The reason you get so many unsolicited offers is because the major credit repositories – Trans Union, Experian, and Equifax - sell your information as soon as a credit report is ordered by a mortgage company.

A creditor, in this case a mortgage lender, is allowed to make an offer of credit to anyone who meets their lending criteria. As soon as the lender orders the credit report as part of the normal mortgage process, the credit repository puts the borrowers’ names on a "Pre-Screened Offer of Credit” list, more commonly known as a "trigger list."
This list is sold to anybody who wants to buy it. Mortgage lenders and brokers purchase the list and then solicit the borrower, either by phone or e-mail, with an offer of their own. All of this can take place within minutes or hours of the lender pulling your credit report. Last fall, my sister and her husband wanted to refinance their mortgage. The day after I pulled their credit report, they received an offer from the current servicer of their mortgage – the next day!

There is a way you can stop this from happening - you can opt-out of this process. By opting out, you will remove your name from lists sold to other mortgage companies. Simply visit http://www.optoutprescreen.com or call 888-567-8688 to opt out. You will have to give them some personal information necessary to process your request, and you can opt out for 5 years or permanently.

By opting out, it in no way limits your ability to apply for or obtain a mortgage or any other kinds of credit. It just prevents your information from being sold to other lenders which will prevent your private information from being sold to people you didn't authorize to have it, protect your privacy, reduce the number of unwanted credit offers you receive, and may even reduce your risk for falling prey to identity theft.

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