Archive for Real Estate

How Home Inspection Repair Negotiations Can Mess Up Your Closing

How Home Inspection Repair Negotiations Can Mess Up Your Closing

The mortgage lender is involved in most pieces of the home buying process but, thankfully, we get to stay out of the repair negotiations.  As long as the repairs are not required by the appraiser, we let the buyer, seller and Realtors work out what needs done between themselves.There are some ways that the repair negotiations can keep the bank from closing on time, though.  Let’s review the two most common trip wires and how to avoid them.

Can’t We Just Get the Repairs Done AFTER Closing?

Realtors often ask if repair work can be done post closing.  In short, the answer is no.  This is just putting unnecessary risk in play for the buyer.  What if the trades person doesn’t do the work as agreed?  What if they do the work but the cost ends up being more than planned?  No one wants to be dealing with these issues after the closing is done.

While I suspect sometimes the tradesperson is paid at closing even though the work isn’t done and the lender is none the wiser, it’s a bad habit for Realtors to get into.  To protect your buyer’s experience and your future referrals, get the work done before closing.

Can’t We Just Have the Seller Give The Buyer Concessions at Closing?

Many times the buyer and seller decide to let the buyer handle repairs in the future with the seller compensating them for that cost at closing with additional seller concessions.  This is problematic on three fronts:

  1. If there already are seller concessions in place, the additional amount may put total concessions above the maximum allowed.  This comes up the most with conventional loans.  Total seller concessions for conventional financing can’t exceed 3% of the price, regardless of the reasoning for it.
  2. The additional concession may cause the bank to need to re-disclose.  A seller concession is factored into the APR calculation.  If the APR is more than 0.125% more or less because of the change, the lender has to re-disclose and give the buyer at least three days to consider the new figures before closing.  That means the lender can’t find out about this when the HUD is being drawn up.  It’s too late then to re-disclose and close on time.
  3. Lastly, when additional concessions are added, the appraisal will need changed and re-approved by the lender.  Appraisers have to report any concessions in their report.  This updated report may take a couple of days to get back and another day or two to be reviewed. Again, if the lender learns about this additional concession days before closing, closing isn’t going to happen as planned.

Negotiating repairs is just one of the hundreds of important services that Realtors provide for their clients.  Lenders like me are grateful to our Realtor partners for doing it well and keeping the sale together when inspection issues arise.  If our Realtor partners can take the additional step of getting the work done before closing and informing the lender early of any changes to concessions, we’ll be able to do our part better also to get the purchase closed on time.

Lori Hiscock is a Sr. Loan Officer at Ruoff Home Mortgage‘s South Bend office.  One of Michiana’s top mortgage loan officers, Lori started her lending career in 1995 after obtaining her bachelor’s degree in Finance from Western Michigan University.  You can connect with Lori Hiscock or apply online here.

How Can Home Appraisals Effect Your Mortgage Loan

How Appraisal Data Verification Can Stop Your Sale

If you’re a Realtor, you’ve had a sale or two before where you were nervous about how your client’s home would appraise.  You likely didn’t stop worrying about it until you got the mortgage lender’s call telling you the report was in and the value was fine.  Once you got that call though, you probablycrossed the appraisal off of your list of things to worry about, believing all was good with it.

THINK AGAIN!  What Realtors don’t realize is that most loan underwriters conduct a data verification process after an appraisal is received that could take that nice, clean appraisal and make it a deal breaker in the financing of the home.

What is Data Verification?

dataverifyBanks rely heavily on the value showing in the appraisal report, but that value is only as good as the appraiser who put the report together.  Sometimes appraisers have off days.  Sometimes they miss things.  Sometimes they even deliberately try to make a value work, thinking they’re helping the buyer out. For whatever reason, the value they put on the appraisal report is not always right.

How will a lender know that though?  They’ll know because they run the appraisal through an online data verification system.  These online systems have been created to do fast value assessments based on MLS data and property tax records.  Companies like DataVerify, Collateral DNA and Corelogic are all extensively used by the mortgage industry to provide a quick ‘second look’ at the appraised value of a home.

How does this impact the loan?

Most of the time, this doesn’t impact the loan.  The data check comes back close to the appraised value and everything moves forward.  Sometimes, though, the data check value is significantly lower than the appraised value.  The lender may then try running it through a second or third data check system, hoping to find one that supports the value.  If none do though, they have a problem.

How is the problem fixed?

A failed data check does not automatically cancel out the original appraisal.  Lenders understand that a lower automated value could be wrong.  The lender doesn’t want to waste the buyer’s time or money, so they will verify the accuracy of the information though assessor records to ensure the sales indicated are actually legitimate sales before taking the next step.

If there is still concern after that, though, another appraiser is hired to do a desk review of the original report.  They will review it along with the MLS data to say whether they feel that the original appraiser was accurate on value or whether they agree with the computers and think he was stretching.
If the second appraiser says the value is ok, all is good.  The bank can proceed.  If he does not, they get the value that the second appraiser feels is accurate and, assuming it works with the data check figures, they proceed with that lower value.

What should a Realtor do then?

Well, first, if your lender says that a desk review of your appraisal is needed, don’t freak out.  There’s a good chance that the second appraiser will support the first appraiser’s findings.

They may not, though, so you’ll want to start talking to your buyer about how you will proceed if the appraisal is cut.  Just like with other cut appraisals, the home buyer can request that it be disputed.  Just like with other cut appraisals, though, those disputes are hard to win.  Recent comparable sales in the subject property’s immediate marketing area (PUD/subdivision/neighborhood) carry the most weight and should be the area of focus in any value dispute.

You also have to be open to the reality that the current value of the home might be lower than the price.  If it is and if the seller won’t drop the price, maybe this isn’t the right home for your buyer to purchase.   Lenders are protecting themselves when they verify the value of a home, but they’re protecting the buyer too.  We’ve all seen homeowners who have suffered from owing more on their home then it’s worth.  Keeping them from over paying upfront is one way to help avoid that for your client in the future.

Lori Hiscock Loan OfficerLori Hiscock is a Sr. Loan Officer at Ruoff Home Mortgage‘s South Bend office.  One of Michiana’s top mortgage loan officers, Lori started her lending career in 1995 after obtaining her bachelor’s degree in Finance from Western Michigan University.  You can connect with Lori Hiscock or apply online here.

Taking the Mystery Out of FHA Property Standards

questions with little tiny people

In 1998, we bought a little bitty house for our little bitty family using FHA financing.  That was two years before I joined the mortgage industry and I had no idea what FHA was or how it would impact me.  The lender just said FHA was the way to go, so we went.

Unfortunately, our experience was HORRIBLE.  FHA required tons of repairs and we were constantly afraid that the seller would say “Enough!”, making us lose the home we loved. Thankfully, they stuck it out and we made it to closing, but not before I’d learned to despise all things FHA.

I’m ashamed to say that it was a full seven years before I decided to forgive FHA and propose it to my buyers.  When I finally did, I quickly learned that the FHA I knew in the 90’s was not the FHA of today.  Property standards had SIGNIFICANTLY lightened.

“The home’s condition rarely kills the sale anymore, and
when it does – it probably should.”

 

Many borrowers (AND Realtors) are still afraid of FHA, largely due to the fear of the home not meeting FHA’s property standards.  To help you overcome that fear, let me review the Top 12 FHA Property Standards that you should know about when considering FHA financing.

  1. Watch for the 3 S’s – FHA is looking at the soundness, structure and safety.  Is it a safe place for the buyer to live?  Would the property be marketable if they had to foreclose?  Keep your eyes open for anything that would make them answer “No” to those two questions.
  2. Think 2 Years – FHA wants to know that the operable elements in the home (furnace, water heater, etc.) should be working for at least 2 years.  If they look like they’re on the last leg, an inspector will need to say they have 2 years of life or they will need fixed or replaced.
  3. Functioning Utilities – The house has to have running hot water, a working bathroom, heat, and electricity.  The appraiser needs to verify this.  So if any of these utilities are not turned on at the time of the offer (water, electricity, gas, etc.), get it turned on before the appraiser goes out.
  4. Acceptable Attic – If there is an attic, the appraiser must look at it.  They’re looking for proper ventilation for heat/moisture from the home and no obvious leaks.  A simple ‘stick your head up there and look around’ inspection is typically enough for this.
  5. Dry & Sound Basement – If the home has a basement, the appraiser is going to be looking for potential structural problems or dampness that could indicate structural or mold issues.  Basically, look out for water, mold or big cracks.
  6. Crawl Space – If the home has a crawl space instead, the appraiser has to look at it. He’s primarily looking for excessive dampness/pooling water and if it’s large enough for any duct work or plumbing located there to be serviced.
  7. Ground Grading – “Grading” means basically which way is the ground sloping – towards the house (bad) or away from the house (good).  This tends to go along with the wet basement situation.  If the basement is wet, the appraiser will look at the grading to see if that’s the cause.  If so, re-grading will be needed to divert water away from the house.
  8. Common Safety Issues – Common safety issues with FHA are broken windows, doors, or steps.  Inadequate or blocked doors can also be a concern, as can steps without handrails.  Just a couple of handrail-free steps are typically fine, but once you get to 3 steps or more, a handrail may be required.
  9. Chipping paintThe Dreaded Lead Based Paint – This is the most common FHA property issue.  For homes built before 1978, look for chipping/flaking/peeling paint and look for it EVERYWHERE including all outbuildings, decks and fences. Pay attention to windows as they seem to be a popular area for peeling paint.
  10. Life of Roof – The 2 year rule applies here, too.  The appraiser needs to say if the roof has 2+ years of life.  If he’s not sure, a roofer will need to inspect it.  The only exception to this is if the roof is snow-covered.  In those cases, this can be waived.
  11. Septic/Well Water –  The well water will need to be checked for lead, nitrates, nitrites and coliforms which is more than the county minimum, so tell the water lab the buyer is going FHA.
  12. Termite Inspection – A termite inspection is not required unless the appraiser notices evidence of infestation.  If they do, it needs looked into further.

Are these the only rules, you ask?  Nope, but these are the common ones that you should look out for.  These are items that you would likely be looking out for anyhow, because want a safe home, right?  Now you just have them in a nice list format!

If you’d like to start the mortgage process, click here to select your loan officer.  Don’t have a loan officer?  Give your local branch a call.  We’ll gladly connect you with the right person!

Lori Hiscock Loan OfficerLori Hiscock is a Sr. Loan Officer at Ruoff Home Mortgage‘s South Bend office.  One of Michiana’s top mortgage loan officers, Lori started her lending career in 1995 after obtaining her bachelor’s degree in Finance from Western Michigan University.  You can connect with Lori Hiscock or apply online here.