How Does The Home Inspection Process Work?

home-inspection-2After you negotiate the price and terms of your contract to buy real estate, you have the right to inspect the property.

You hire an inspector to “check under the hood” of the property. This will cost between $200 and $500. The inspector produces a report with everything he/she finds. Inspectors go through the house with a fine-toothed comb, so they find lots of stuff, big and small. You and your agent look through the report and determine what you can’t live with, such as unsafe radon levels in the basement, for instance. If there’s more than you can handle, you have the option of terminating the contract.

If you want to move forward, you submit an Inspection Objection document to the seller with all the issues you want fixed before you purchase the house. How much should you ask for? While everyone has their own negotiating style, I prefer to ask for a reasonable number of items, rather than everything in the report. No house is perfect, even brand new ones, so it’s not logical for the seller to fix everything. Instead, look for safety issues, items that should be expected to work, and things not working due to neglected maintenance.

Inspection Objection items are negotiable, so you and the seller will debate what will be fixed: all, some, or none. To me, this is the advantage of asking for a reasonable number of items; you are more likely to get what you want if you are reasonable.

After you and the seller agree on what will be fixed, one of the agents prepares an Inspection Resolution, which you and the seller sign. This binds the seller to address the items on the Resolution.

The last step is to verify the work was done. You can hire the inspector to re-inspect the property. You can ask for reciepts to show the work was done. You can also walk-through the property yourself.

Inspections are a necesarry part of home buying (and home selling) process to ensure that peace of mind when you take over your new home.

For a list of qualified inspectors, please contact Gary Clark. 

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Mortgage Rules Changes Are Coming in 2014

Mortgage_rulesThe world of mortgage lending has changed significantly since the housing bubble burst. Mortgage lenders have returned to traditional loan standards that require extensive documentation of income and assets for a loan approval.

Government regulatory agencies also continue to react to the housing crisis, with more adjustments to mortgage requirements set to go into effect in 2014:

Qualified Mortgage Rules

Whether you’re thinking of buying a home or mulling over refinancing your mortgage, Jan. 10, 2014, could be an important date for you to remember. The Consumer Financial Protection Bureau is in the process of implementing regulations to meet goals set forth by the Dodd-Frank Act in Congress, which was meant to correct the errors that led to the housing crisis. The CFPB’s “Qualified Mortgage,” or QM, rules go into effect in January. Essentially, these rules require lenders to prove borrowers’ ability to repay a loan by meeting several guidelines, including a maximum debt-to-income ratio of 43 percent. While many lenders already limit borrowers to a similar maximum debt-to-income ratio, the new rules won’t allow for any compensating circumstances such as significant cash reserves or a large down payment to be considered in order to offset a higher debt ratio.

If you have credit problems or a high debt-to-income ratio, you may want to push through your loan application for a refinance or home purchase to make sure you close your loan before the new rules go into effect. However, many lenders are already using QM standards in order to make sure they’re in compliance with the regulation. Mortgages that don’t meet QM standards will have to be held by the lender rather than sold to Fannie Mae and Freddie Mac, so most lenders are careful to meet the new standards.

The 3 Percent Rule

The new QM requirements also limit fees for originating a loan to no more than 3 percent of the loan amount. If you’re financing a more costly home, such as a $400,000 home or more, the lender can easily keep fees under 3 percent, which in this case would be $12,000. However, if you’re refinancing a smaller loan balance or purchasing a less expensive home — for example, for $80,000 — the lender might find it more difficult to keep all fees under $2,400. Mortgage lenders are less likely to offer loans for smaller amounts since they won’t always recoup their costs and make enough profit to pay their staff. If you need a small loan, you may want to push to get it closed before Jan. 10, 2014.

Self-Employed Borrowers

One particular group of borrowers will most likely be impacted by the QM rules: self-employed borrowers. These borrowers already are heavily scrutinized and find it more difficult to obtain a mortgage because they must prove their income based on tax returns and profit-and-loss statements, rather than standard paystubs and W2 forms. The “ability-to-repay” feature of QM rules requires all borrowers to prove they have the cash flow to make payments on their mortgage. Self-employed borrowers often have fluctuating income and rely on cash reserves to pay bills in-between payments, but the emphasis on cash flow can make it harder for lenders to approve a loan even for someone with significant funds in the bank.

Potential Lower Loan Limits

The Federal Housing Finance Agency, which regulates Fannie Mae and Freddie Mac, announced in October that plans to reduce the maximum loan limits for conventional conforming loans will be delayed until later in 2014. Typically, loan limits are adjusted on Jan. 1 of each year, but the agency decided to wait to see the impact of the introduction of QM rules before making changes. Currently, the limits are $417,000 in most housing markets and rise to $625,500 in high cost areas. If you need a mortgage near these limits, it would be wise to close your loan earlier in 2014 rather than later in case limits are lowered.

If you would like a referral to a qualified lender, please contact me. 

Reprinted from Realtor.com, December 2013

I’m a Buyer, Why do I Need a Real Estate Agent?

Agent-GuideI can hear the disappointment in their voice through the phone; it’s a caller who wants information about a house they saw on Zillow or Trulia. They want to know how many bedrooms it has, how big it is, if the basement’s unfinished, stuff like that. Due to our red-hot market, I have to tell them the house is under contract. Sorry.

When I ask the callers if they are working with an agent, most say no. This always surprises me. I would think people would welcome free professional help in finding a great property at a fair price, and to ensure that their transaction goes smoothly. After all, buying a house is a BIG PURCHASE, usually for hundreds of thousands dollars.

Yet for some reason, many people would rather shop on their own than work with real estate agents. Is it fear of salespeople? Fear of being coerced into something they don’t want? Or just needing some time to get comfortable? A good real estate agent is there to guide you, advise you, and be your advocate – not to cheat you. Here are the biggest benefits of having a guide on your home buying journey.

Buyers Agents are FREE
The first reason to engage a buyer’s agent is that the service is FREE. How can it be free? Because the seller pays a commission to the listing agent (the agent who listed the house). The listing agent shares their commission with the buyer’s agent.

More Effective House Hunting
Buyer’s agents use the best tools to hunt for houses: Multi-listing Services (MLS). This is most complete, up-to-date source of information. It’s updated instantly, whenever houses are added or data is changed.

Buyers without agents use popular websites and phone aps such as Zillow, Trulia, and Realtor.com. Data in these programs is old, maybe from days or weeks ago. That’s why the people who call me think houses are still available when they are under contract, and they don’t know about new listings.

So when you work with a buyer agent, you get someone looking full time for you, using the best tools available. You are more likely to find a great house with an agent than looking on your own.

Advocacy: Your Best Interests
When you call a listing agent, you need to understand that he or she works for the seller – not you. Think about it this way: assume you are in court. Would you go to the prosecutor and ask him or her to defend you? Does the prosecutor have your best interest in mind, or his client’s?

The listing agent is legally bound to look out for the best interests of the seller – not you. Anything you tell a listing agent he is obligated to tell the seller, no matter how personal or confidential.

You need an advocate during the entire buying process. You need honest advice on the price you offer, the condition of the house, the contract you write, and the stack of disclosures, notices, and addendums you will sign. During negotiations, a buyer agent looks out after your interests only – a seller agent looks out for the seller’s.

After your contract is accepted, a buyer agent still works hard for you. The contract has a list of tasks and a schedule by which you need to complete them. A buyer agent monitors these important tasks, tells you what to do, and keeps you on track with the dates.

Keep in mind that your earnest money is “at risk” throughout the contract. (Earnest money is like a deposit.) If you don’t perform on the contract according to the schedule, you can lose your earnest money to the seller. A buyer agent watches the schedule to keep your earnest money safe.