Property Inspections: Are They Necessary?


One question that has been commonly asked by prospective purchasers of real estate property, especially those would-be purchasers that will apply for FHA financing, is whether or not a real estate inspection is really necessary. The long and short answer to that question is, absolutely! I will make my best effort to explain exactly why this is so.

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First of all, we should understand clearly what a real estate property inspection is: The act of having a qualified (and in many states, licensed) professional take a look throughout the property you are considering buying and informing you of obvious and potential damage or problems with the property. This is not something you want your uncle Bob doing, unless of course, good old uncle Bob has had the training and experience to know what to look for to satisfy an inspection report and the knowledge to anticipate potential property breakdowns.

The smart home buyer knows that even though the property must be evaluated by a hud-approved (FHA) appraiser, this will not be enough to insure that the property will be free of deficiencies or potential breakdowns of major working components because although the appraisal must be done in accordance with HUD’s “Minimum Property Standards”, the appraiser’s primary responsibility is to determine value and not structural integrity of the property or its working components.

Many who are planning to purchase properties and obtain mortgage financing through the FHA comes with the attitude that they know there are problems with the property, but the price is very attractive and by the time it is appraised those problems will be dealt with and that is why they are purchasing the property. The problem is that the untrained eyes may miss some problems that should be addressed before moving along to other problems. The problems they are aware of may not be what ultimately causes the foundation to crumble.

For instance, if there were obvious signs of plumbing problems that could result in a leak behind the wall, you wouldn’t want to paint that wall or replace the floors until you had the possible leak checked and either confirmed or denied and repaired if necessary. Otherwise you would likely need to undo the work (wasting both time and money) that had already been done by the time you found out about the leak that a competent property inspector would have told you about before you even began working on the property.

The smart home buyer knows that property inspection reports and professional engineer reports reflect all elements of a real estate property (foundation, roofing, heating, plumbing and electricity, to name a few that are readily recognizable to us), the condition of those elements today, the life span (projected time to continue working) and whether replacement or repair will remedy the inevitable breakdown. The smart home buyer places great importance on the property inspection report in his/her purchasing decision.

Inspections are great before making an offer on a house because they actually give home buyers a bargaining chip. For the serious home buyer this is a fact that simply cannot be ignored as it directly affects the bottom line price. If the roof needs to be replaced you are justified in making a lower offer. If the electrical system needs to be updated, this is something that should be adjusted or amended in the final offer. These are also things that are easily identified by a qualified and competent property inspector. Anything that can save time and money is great when investing in property and an inspection can do both.

Another great purpose about a good property inspection is that it often sheds light on the amount of money that will be needed in order to get the house in good working condition. Knowledge is very important when purchasing a home. It can mean the difference between taking on an unknown expense or walking away if it would be too great to deal with once title and responsibility has been transferred. A purchaser should never take on a property that is pretty much guaranteed to blow a hole in the home management and mortgage repayment budget and probably the only way to avoid this is to know about it ahead of time with a property inspection report.

The smart home buyer knows that a proper home inspection can inform you of potentially hazardous conditions within the home that may not be readily apparent to the untrained eye. Some of these things include toxic mold, which can be financially disastrous as well as hazardous to your health; foundation issues, and structural damage that is threatening the integrity of the property, among many others as mentioned earlier.


An inspector should also notice the structural integrity of homes that could affect your home if they are weakened or fail all together. While these things seem so simple, it is often the simple things that lead to the greatest disasters. Whether or not you realize it, a good home inspector is one of the best tools you can have in your arsenal when it comes to purchasing real estate.

A message to REAMS readers:

Your support is very much appreciated. We will continue working to provide the most relevant and useful information about current FHA-insured programs and related topics. Please provide any comments, opinions or preferences which you would like us to be aware of. Thanks and God Bless!

Javeton

For more about 203k, visit the HUD website; and to find out if you qualify for 203k financing, visit a HUD-approved lender at www.unitednorthern.com/.

humor

If the government can’t run business, how come businesses always run to the government for a bailout when it runs into trouble? FHA-insured mortgages, government run for 75 years. Lest we forget?

As of July 1, 2009 a recent housing initiative was expanded to allow Las Vegas borrowers who are up to 125% underwater on their mortgages to seek mortgage refinancing. Thanks to the Making Home Affordable program!

Underwriting the Mortgage Loan Application


An underwriter’s responsibilities will increase under the new regulations due mostly to the changes in implementing RESPA disclosure documents (Good Faith Estimate & Truth-in-Lending). The new guidelines which takes effect on January 1, 2010 will certainly increase an underwriter’s workload, but more importantly, the flexibility in decision-making may be greatly reduced. The following paragraphs provide a glimpse of those responsibilities.

When application for a mortgage loan reaches the underwriting stage, two things are true. First, the various documents, disclosures and verifications have been provided in a manner that is acceptable to the processor; and second, the processing stage is effectively over. That is not to say that the file may not be sent back to processing, but for the most part the fate of that loan now rests with the ultimate decision maker.

It is at this stage where all parties to the transaction start to hold a collective breath. It is said that if a processor’s job is highly specialized, then an underwriter’s task is intensively so. Included with these responsibilities are the interpertation of terms, guidelines, regulations, predatory laws, and investor requirements which are repeated in casual conversations among industry professionals to underscore specific areas which may be affected as change in the industry takes effect.

An underwriter must approach these terms differently because it is the underwriter’s job and responsibility to be quite certain that each loan s/he is entrusted with is underwritten in accordance with each program guideline, and that each regulation governing mortgage lending is adhered to. In addition, an underwriter must insure that the loan is not in violation of certain predatory laws of the State in which the property is located.

Oh yes, the loan still has to be approved if it is deemed to have met all approval criteria by that same underwriter. Here is the thing which may be surprising to many outside the industry; Most of the loans do ultimately get the approval nod (or sign-off) due to an underwriter’s ability to recognize potential “red flags” during the course of working on a particular file, and require that they be removed, corrected or reasonably explained with “acceptable documentation”, where necessary.

I am fortunate to have worked with some very studious, committed and intelligent FHA underwriters who managed to balance compliance with regulations and guidelines with the pressures and demands of borrowers, their attorneys, and loan officers – I was sometimes included in that last category – and they still managed to approve loans and maintain an excellent underwriter’s rating at the same time.

HUD’s position, traditionally, was that an underwriter who wished to underwrite FHA-insured loans, must be directly answerable to HUD by undergoing HUD-endorsed training and a certification process – in addition to any and all previous education – and receiving that agency’s stamp of approval.

So when a FHA loan is approved, and the commitment letter is issued after going through the process outlined above, be rest assured that the borrower’s qualification for that loan has been well documented, and the closing is within reach.

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Thank you for your support. We will continue working to provide the most relevant and useful information about the FHA-insured program and related topics.

For more about the FHA mortgage program, please visit the HUD website; and to find out if you qualify for FHA-insured financing, visit a HUD-approved lender at http://www.unitednorthern.com.

Javeton


Humorous or Ironic?

If the government can’t run business, how come business always run to the government for a bailout when it runs into trouble? FHA-insured mortgages… Government-run for over 75 years. Lest we forget?

Processing of the Mortgage Loan Application


The term processing could apply to just about any multi-step undertaking, but when the subject is mortgage lending, processing of the loan application is as specialized a function as some of the most document-intensive businesses you can imagine. The individual entrusted with processing of a mortgagte loan application, namely a processor, must be uniquely qualified and therefore is compelled to obtain the education and training necessary to be as efficient and thorough as the position demands.

In a mortgage loan application, the end of an originator’s job marks the beginning of a processor’s job, at which juncture it is effectively the processing stage, which places the responsibility of loan preparation for underwriting on the processor. Just as the loan officer must be able to identify and address potential problems at the origination stage, a processor is expected to verify income and assets with acceptable documentation, as well as ascertain the borrower’s credit is satisfactory enough to merit submission to underwriting.

It is at this stage where many a loan is held up for reasons unforeseen by the borrower, originator or processor due to the simple fact that several different elements are added to the equation; especially in the case of a FHA mortgage.

Specific issues could be the appraisal report (which may or may not reflect a value sufficient enough to support the loan), verification of employment (VOE), verification of deposit (VOD), proof of down payment, all required disclosures (including RESPA disclosures, and State-specific predatory lending documents), and a number of other requirements which must be dealt with before the loan application package can be submitted to an underwriter for approval consideration.

If everything falls into place in a timely manner – appraised value is adequate, VOE is returned by employer, VOD is returned by depository, and all disclosures are in order – then a processor can prepare the loan for underwriting. However, that’s a very big “if” because invariably it is necessary to wait for a verification to be completed correctly and returned, or there could be an issue with the appraisal which delays the process.

It is reasonable to opine here that one of the first lesson a processor learns is to submit to underwriting a fully processed loan application package; otherwise the package may be returned to processing as incomplete; so when a borrower wonders why the “process” takes so long to complete, the answer can be found in possessing a clear understanding of the steps required at each stage of the mortgage application process, especially stage two.

Processors are often accused of delaying or preventing a loan closing, but such accusations are unfounded because in many cases, a loan processor has absolutely no control over the actions of other parties involved, especially third-party participants, borrower’s financial institutions and employers, among others.

Mortgage related sites of interest:

To find out if you qualify for 203k financing, visit a HUD-approved lender at http://www.unitednorthern.com.

Humorous or Ironic?

If the government can’t run business, why is it that big business always run to the government for a bailout when it runs into trouble?
FHA-insured mortgages… Government-run for over 75 years. Lest we forget?