Can You Fail a Home Inspection?

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Is it possible to fail a home inspection?

The short answer to this question is, “No, a home inspection cannot be failed.” Of course, the details are more nuanced. In the end, a home inspection is a tool utilized by home buyers, homeowners, and their financial partners (banks, credit unions, and other sources of private capital) to determine whether the risks associated with a  property are worth their investment. The client that orders the inspection is the only person who can make that value judgment.

However, taking the time to understand the scope and value of a home inspection, knowing for whom and why it has been commissioned, and the severe and potentially life-threatening issues that a competent assessment may unearth are well worth the investment.

Let’s begin with who a home inspector works for. They are either contracted through a real estate agent or directly by the prospective homeowner or buyer. The contents of an inspector’s report are only available to the individuals who commissioned it, who are free to do with it what they wish. It is essential to understand that a home inspector is not an agent of the state and serves in a different capacity than city or state code inspectors that ensure compliance with building codes on all permitted construction. Instead, their job is to issue a comprehensive report on the state of an existing home for the homeowner. This will allow for an informed decision regarding all current and future care and maintenance their new investment may need. They are restricted by ethical code from making aesthetic value judgments or declaring a house to be condemned. (Condemnation is, in itself, an exhaustive process that requires many levels of municipal government to be finalized)

The home inspector’s scope of work is the structures (excluding sheds and other outbuildings) on a property, interior and exterior. They conduct a prescribed visual survey of the home; their work is non-invasive, meaning they are not permitted to remove or deconstruct any of the home’s equipment. Standards do not compel the home inspector to access spaces that are not readily accessible without moving existing furniture and property, or that could put themself or others at risk. The complete rubric for a home inspection can be found at ASHI.com under Standards of Practice and helps understand the limitations of a home inspection.

A completed report with photos will paint a picture of the state of the home in question at that moment in time. It highlights possible areas requiring remediation for damage, rot, and mold. The age and function of the HVAC and hot water system will be listed, and the electrical system will be described based on the service’s amperage, voltage, and disconnect location. Older equipment and wiring will be noted so that the homeowner can be reasonably informed of the risks they are taking on.

Many things in an expertly compiled report can drive off a potential homeowner. Yet, only a few houses present insurmountable challenges to remediation and restoration. A good home inspection can provide a road map if the owner is up for the challenge the report represents. It offers solid ground from which the client can then negotiate terms of purchase, either compelling the seller to make changes themself or make financial concessions toward the final purchase price.

If an agreement proves impossible, the buyer may walk away, but the home has not “failed” its inspection. It simply was not a good fit for that buyer – the same inspection report may spark excitement at the prospect of a new challenge in one that elicited fear in someone else.

Do I really need a home inspection in this hot real estate market?

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Like many other parts of the country, Montana real estate is flying off the shelves. As inspectors we chat with our local real estate professionals on a daily basis. Lately we hear mostly about how crazy this market is and how buyers are competing with other offers for every single home no matter the condition of the place.  And then there is the one single thing that they tell us that we, as home inspectors, HATE TO HEAR… in many cases buyers are foregoring the home inspection in an effort to enhance their offer to sellers. That’s right, in some cases the buyer has decided to move forward with their purchase of the home without having a home inspection performed in order to find out about the condition of the home. Yikes! That is not a good idea!  

So why are some home buyers choosing to forgo a home inspection?

Well I don’t know about what is happening in other parts of the country but up here in Flathead Valley, the Northwest region of Montana, here are some of the reasons we are hearing about this unorthodox plan for a home purchase.

Scenario 1:

The most common reason is that buyers are trying to find every advantage they can in order to compete with other offers. Some buyers reason that it serves no purpose because in order to compete with other offers coming in they cannot afford to make demands in the form of concessions [either asking for items to be remedied or in the form of monetary reductions in the sale price].

Scenario 2:

Another reason they are choosing to skip the inspection has more to do with timeline. Again due to the highly competitive nature of this “hot” real estate market, it is common for realtors to set expectations for a very short transaction timeline. This serves to help to “sweeten the deal” when a realtor comes in with an offer that includes a rapid closing timeline. And when that is the case, there may not be enough time included to reasonably get a home inspection scheduled and completed by that date. 

Whatever the reason, it’s not wise to skip a home inspection. Even if the buyer has no opportunity to use any deficiencies that were identified in the inspection as a way to negotiate credits or ask for them to be fixed as is common right now, the inspection can provide a great deal of insight about the condition of the home. 

In some cases an inspection may reveal some very unattractive deficiencies and thus a buyer may decide to walk away from the purchase because they know a seller will just move on to the next offer so that they don’t have to give away any credits or fix anything. So if you think about it in terms of “risk analysis”, the home inspection is a tool to help you to identify any humongous risks that you may be getting into by purchasing a home which may have some very major and costly expenses coming down the road. Wouldn’t you want to know for example if the home has some very major defects in the foundation or possibly the wall structure?

Another great reason to still plan on inspecting any possible home purchases even if the seller won’t negotiate any concessions is to find out more about the general condition of the home and to identify any items that you will either want to fix or that you may need to fix once you own the home. It can be something small like installing GFCI outlets in the bathrooms if they are not there. Or maybe the report identified some issues like missing anchor bolts on a deck ledger board. This is the board that attaches to the house where the deck is supported. Now would you want to stand on a suspended deck knowing that it is not properly constructed and supported? 

There is so much to learn about each and every home and that is what home inspectors do. Aside from inspecting the exterior and interior of the home, they walk the roofs, look in attics, and they crawl through the area under the home called the crawlspace. And any home inspector will tell you that “no home is perfect”. Every property has it’s kinks. So its good to find out what is going on in the home you are about to buy. That way you can make an informed decision and feel good about this major investment.

How our reports help you… the real estate agent!

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If you’ve been a real estate agent for a long time now, it’s likely that you have seen your share of the lengthy “old school” pdf style home inspection reports [perhaps 65 or 75 pages {ouch!}]. And it’s typically your job to wade through that document and extract the items and deficiencies that you need to use to prepare your document in order to negotiate any concessions and ultimately move the transaction forward.  Goodness… that must take a very long time!

Well thankfully those days are over. 🙂

If you are not familiar with our reports, I want to share with you some of the benefits of our reports for you – the agent.  Or, even if you are familiar with our reports there may be features that you are not aware of and not utilizing. So I want to make sure that we are helping you to take full advantage of the features that can really help you to save time in your efforts to close your transaction – and that is a win-win for everyone! 

Okay so here is what you need to know in order to really utilize these features and in the end it will SAVE YOU LOTS OF TIME AND EFFORT!

I have two words for you to remember: “REPORT TOOLS” You have two different ways you can use the agent tools. First let’s help you to find those. 

When viewing a report in the upper right hand corner look for this:

When you click on that option “report Tools – you will see two options that look like this:

These options will allow you to do either of the following:

  1. Copy and paste the text from the recommendations to a document of your own, or an email. 
  2. 2. Use the Repair Request Builder tool to create a document with pictures, comments and you can even add a dollar amount to each item

Option #1 is fairly straightforward and once you select the Copy-paste option the dialog box appears with the text.

For the other option to use the Repair Request Builder, here is a video that demonstrates how to use that tool.

And that’s it!  There are 2 great tools that you can use as the real estate agent to save time and get the information you need.

What’s included in a home inspection?

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A home is the biggest purchase most people will ever make, and a home inspection is always recommended before buying a home. It’s important to realize the condition of your investment.

While some little quirks may be nothing to worry about, there may be more serious issues that only a professional home inspector can assess.
A large part of surviving the home inspection is understanding what is and what isn’t included.

Here’s a helpful infographic that shows you what’s covered in a home inspection.

What is included in a home inspection?

FHA and VA Inspection Checklist

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FHA Inspection Checklist

  • The property must be a single real estate entity
  • The property must be free of hazards and conditions that pose a risk to the health and safety of the occupants or adversely affect the structural soundness and use of the home
  • The septic system (if present) must be functional
  • Property must be free of soil contaminants
  • No underground storage tanks
  • Site must adequately drain water away from the perimeter of the walls
  • Must have an acceptable and sufficient water supply
  • Must have safe and sanitary sewage disposal
  • No evidence of termite infestation
  • Property must have safe and adequate access to cars and pedestrians from a public or private street
  • Presence of any defective conditions, including but not limited to, poor construction, leaks, decay (A property with any defected conditions is considered unacceptable until the defects are corrected.)
  • Natural and adequate ventilation of attics and crawl spaces
  • Foundations must be in good condition
  • Property must have sufficient access to the crawl space
  • Roof must be in good condition and prevent moisture from entering the home. (If re-roofing is needed, FHA requires specific guidelines.)
  • Mechanical systems must be safe, protected from destructive elements, functional, durable and of decent quality
  • Heating sources must be safe, functional and meet any local requirements
  • Electricity must be available for lighting and any equipment used
  • Additional health and safety hazards, including but not limited to, broken windows, blocked doors or steps without a handrail
  • No presence of lead-based paint

VA home inspection checklist

While there may be some overlap in what a home inspection and VA appraisal covers, a home inspection should provide homebuyers with a holistic look at the quality of the entire home. The main items your home inspection should cover:

  • Home structure. The construction of the home is sound, including walls, floors, foundation, roof, and ceilings.
  • Home exterior. Determine the life of the siding, windows and trim, plus inspect exterior lighting and other exterior features like fences. Also, the property has proper drainage based on the grade and elevation as well as landscaping
  • Plumbing. Identify the pipe materials and confirm that everything is up to current standards. Also, inspect toilets, showers, sinks, and faucets for leaks and other needed repairs.
  • Home systems. These include chimney and fireplaces, water heaters, furnaces, air conditioning units, and septic systems if applicable.
  • Roof and attic. In addition to inspecting the construction of the roof, your home inspector should check the framing, flashing and gutters, insulation, and ventilation.
  • Electrical. Determine the type of wiring and that it’s properly grounded. Inspect ceiling fans, light fixtures, and the main electrical breaker.
  • Appliances. Evaluate the condition of dishwashers, ranges, built-in microwaves, garbage disposals, smoke detectors, and any other relevant small appliances in the home.

Covid-19 concerns during a home inspection

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Covid-19 has impacted businesses across the country and we are here to provide you with important information concerning home inspections during this crisis.

A home inspection is a vital part of a home purchase, and homes are still being bought and sold. In fact, the real estate sector and related services such as home inspections have been included in the Financial Services Sector: Essential Critical Infrastructure Workers here in Montana [view statement from the Dept. of the Treasury].

At the current time [as of the posting of this topic 3-30-2020] we continue to provide home inspections during the COVID-19 outbreak. Be assured that prudent safety precautions are practiced and when performing inspections and those are not to conflict with any government orders and recommendations.

Current inspection practices follow recommendations from the Centers for Disease Control and Prevention, Montana Department of Health and ASHI [American Society of Home Inspectors] COVID-19 Guidelines. People should be aware that the situation is changing constantly and should monitor the CDC & ODH for official updates and recommended behavior.

Recommendations for the Buyer and their Real Estate Agent:

  • Do not attend the inspection. If you wish to attend, do so only at the end of the inspection and practice social distancing, remaining at least 6 feet apart from one another.
  • If you choose not to be present at the inspection due to the concerns of the Coronavirus (COVID-19), I’ve got you covered! The detail in my report will make you feel as if you were there for the inspection. I will follow up with a call to discuss the home inspection report.
  • Do not attend the inspection if you feel sick, or if you exhibit symptoms of a respiratory illness. Contact your medical provider.
  • Do not bring children, relatives, contractors, and others to the inspection.
  • Use hand sanitizer before entering and before leaving the home. Avoid touching your face.
  • Touch as few things in the home as possible. 

Recommendations for the Seller:

  • Reschedule the inspection if anyone in the home feels sick, or exhibits symptoms of a respiratory illness. Contact your medical provider.
  • Do not attend the inspection. Make arrangements for relatives, and others to be out of the home during the inspection.
  • Wipe bathroom and kitchen fixtures, toilet handles, and doorknobs with a sanitizing wipe before the inspection. Be sure the wipe instructions allow use on the surface.
  • Before I leave the inspection, I will also be using sanitizing wipes to wipe down items that may have been touched during the inspection.

I’m happy to answer any questions about Covid-19 concerns during a home inspection.

Please feel free to contact me. 406-885-1325

Stay safe.

Barry Wilkins

Glacier Home Inspections

 

Home Inspection Regulation in Montana

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Bills We Support

Realtors and Home Inspectors of Montana

I am seeking your support of SB 269, which passed the Senate floor and will be voted in the House (no hearing date as of yet) This bill seeks to regulate the home inspection industry in Montana, which currently operates like we are still in the Wild West.

A brief summary:

Proposed bill SB 269 creates a registry and standards for home inspectors, including education and insurance requirements.

Registration of Home Inspectors

The bill is designed to revise current Home Inspector laws, require registration, provide fees for listing registered Home Inspectors on the Department of Labor & Industries website, allow for a joint application for a Home Inspector registration and an Independent Contractor Exemption Certificate and create a minimum set of conditions required to become a Home Inspector.

Current Conditions

Currently anyone with a ladder and a flashlight can do home inspections without education or insurance. This practice is a disservice to Montana homebuyers and has hurt some consumers during the buying of their largest asset. This has also hurt the credibility of the home inspection industry as a whole.

For Consumers

The registration would allow a central website for consumers to check the current standing of a Home Inspector. Registration would help insure credibility and set minimum competency standards for Home Inspectors. It would help assure consumers of a minimum level of education, insurance and governance.

For Home Inspectors

Registration would create a more credible and professional industry by minimizing the part time or new inspectors with no insurance or governance by a national organization. The registration list would create a central list for home inspectors to verify a competitor has met the minimum qualifications.

In Summary

The registration is designed to be paid for completely through the registration of Home Inspectors with no cost to taxpayers. The registration list would allow for self-monitoring by current Home Inspectors checking on newer competitors in the field. The registration was designed to include all currently practicing inspectors that have passed an acceptable certification examination as provided by one of the national organizations and is in good standing with that national organization.

I appreciate your support of this bill. Feel free to call me at the number below if you have any questions.  And if you would like to take action to help,

You can TEXT TO SUPPORT SB 269 to:
406-253-8982 (Mark Noland) and 406-471-2356 (Neil Duram)

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-Barry

406-885-1325

pst..

I thought this amusing 1970’s video would be a good way to remind us how these ideas become bills .. and then in the end hopefully a law!  Hope you enjoy!

 

Common Issues That May Cause Your Sump Pump to Fail at Its Job!

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Common Issues That May Cause Your Sump Pump to Fail at Its Job!

Many of my customers ask me about the use of Sump Pumps in their home.  If you have a sump pump or perhaps you are looking into getting a sump pump in your home, here is a bit of information about what they are and some of the possible issues you may encounter with a sump pump that is not running as expected.

Sump pumps are designed to handle surface water and ground water (storm water) that accumulates around the building.

Some houses need sump pumps because the slope of the land directs water toward the foundations. In other areas, sump pumps are necessary because of a high water table.

A sump pump system consists of a sump (tank) below floor level. It has one or more side inlets. The sump may be tile, steel, concrete or plastic, for example. Sumps should be at least 18 inches in diameter and 24 inches deep, ideally with a solid floor. Pumps have both the motor and pump at the bottom of the sump. In either case, there will be 120-volt electrical power and a float switch to activate the pump as the water level rises.  Sumps should have a cover to prevent people, pets and objects from falling in and to help keep radon gas, for example, out of the home.

Common Issues That May Cause Your Sump Pump top Malfunction

Plumbing and Piping

Codes now require a check valve on the discharge side, although we see many installations with no check valve. The purpose of the check valve is to prevent water in the discharge pipe from flowing with gravity back into the sump when the pump shuts off.

The discharge piping line is often polyethylene, PVC or ABS piping, although it can be any approved drainage piping material. Flexible hose is not a good material.

Sump pump pipes discharge incorrect, should be into a ditch, onto the ground, well away from the home, into a French drain (gravel pit below grade), or out through a hillside (to daylight) if the ground slopes down away from the house.

Water should be discharged far enough away from the building that it won’t find its way back.

The discharge line is obstructed or disconnected. The pump may be operating properly, but the water may not be carried away

Electrical

Sump pumps typically have 120-volt cords plugged into a conventional receptacle. The receptacle is typically a dedicated circuit.  All sump pumps should be electrically grounded and a Ground Fault Circuit Interrupter (GFCI) −protected circuit .

Covers

A missing or weak cover is a safety hazard. Children may fall into the sump. Objects may fall into the sump, obstructing the intake or fouling the float switch mechanism

A defective float switch system

When water rises enough to lift the float, the float switch closes and starts the pump motor. The pump runs until the float drops enough to open the switch and turn off the motor.

Sump problems

Debris in the sump or clogged sump.  Sump pits are often collection points for debris. If silt or other foreign material gets into the pump, the pump may be destroyed.

Sump damage

If the sump pit is damaged, dirt may get into the sump. This will clog and possibly ruin the pump. Sump walls may be broken, rusted or collapsed.

Pump problems

There is a risk of flooding if the sump pump is not operable. The sump may not work for several reasons:

A defective float switch system, a lack of electrical power, a seized pump or a burned-out motor.

Sump pumps are inexpensive devices with a critical role. They are an important part of a home inspection. The inspection report should explain the importance of the pump to clients. We recommend quarterly inspection and testing of sump pumps.

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If you’d like more information – or to contact a professional about a consultation for your home water issues, we recommend Montana Basement Solutions

5 Tips On How To Check Your New House Before Moving

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Moving to a new home can be an exciting yet challenging life experience. While a few people describe the process as “fun,” it can take a lot of your time, money, and hard work. When you arrive at your new location, you’ll undoubtedly face many challenges. However, doing some tasks to your new home will make your entire move smooth and stress-free.

Consider these five tips on how to check your new house before moving and you’ll be able to enjoy the life that you deserve.

  1. Change your address.

Updating your address doesn’t have to be a tedious process. All you have to do is head to your local post office and fill in the required form to get started. Or if you prefer the online method, you can submit your address changes here: usps.com/umove.  Make sure you provide all the necessary information to change your address successfully. That way, you’ll surely get your mails at your new home once you arrive. Moreover, you also need to update your address with your subscription and credit card accounts, so you’ll not miss any important document moving forward.

  1. Inspect the locks.

 

As a homeowner, it’s essential to ensure your family and your property’s safety. You don’t want any unauthorized person breaking in your front door, which is why changing the locks in your new home is necessary. Do the task before moving in, so you’ll be able to lay in bed the first few nights in your new home with peace of mind. Additionally, getting your locks changed before the relocation will prevent your belongings from being exposed while you are switching over your locks.

  1. Get your new home cleaned up.

Before you move, it’s also vital to get your new home cleaned up. If you’re doing the cleaning on your own, buy some cleaning supplies to get started. You might need brooms, towels, rugs, and some cleaning detergents. Make sure you wipe off the windows, cabinets, and closets. It’s one way of giving everything in your new home a thorough wipe down. While cleaning might take a few minutes of your time, it’s still beneficial since you’ll get to move to a clean, sanitary place. However, if you opt to get your home professionally cleaned up, look for reliable cleaning services that will handle all the cleaning chores for you.

  1. Upgrade the toilet seats.

Swapping an old toilet seat with a new one will make your new space feel like home. That’s because it’s a bit frustrating scrubbing your old seat hinges without knowing what really happened in it before you move in. Hence, changing your toilet seats will go an extra mile in getting yourself ready for the move. For example, you can replace the old one with a detachable seat that will get everything in it sparkling.

  1. Tackle some maintenance tasks.

It’s a smart idea to handle some major maintenance tasks before moving in. By doing it, you’ll be able to check your new house and determine if there are lots of things to do. Remember, doing a maintenance check on a regular basis is essential in having a good home. Below are some tasks you might need to tackle before you arrive at your new home:

 

  • Check for leaks – Even if your home inspector has inspected your house for leaks, it’s still worth checking it yourself to have peace of mind. Before your official move-in date, make sure you have a supply of water running through your faucets. That way, you’ll know whether you have a plumbing leak or not. Be aware of the current condition of the pipes, so you’ll figure out whether you need a repair or a replacement instead.
  • Look for the breaker box and shut off valves – Be sure you know where your breaker box and shut off valves are located before you move in. After all, finding these electrical fixtures with a flashlight isn’t fun at all. Thus, get yourself acquainted with your new home’s electrical system for easy access once you arrive.
  • Check smoke alarms and carbon monoxide detectors – You shouldn’t sleep at your first night in your new home without checking your smoke alarms and carbon monoxide detectors. Before you move in, go to your new place and test these safeguards. If you don’t have one of these, purchase one at a home improvement store.

The Bottom Line

Now that you have these tips in mind, you’ll make the transition and settlement much easier. With the help of an expert moving company, you can transform a tedious moving experience into something exciting and memorable.

Guest post by: Movers NYC.

What You Need to Buy A House in 2019

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You are about to embark on one of the most amazing and rewarding experiences that can ever come from spending money: buying a home. If you are buying a home in 2019, you should know that the entire process is not quick, but when all is said and done, there are few things more exhilarating than buying a house. This guide will help equip you with what you need to buy a house this year.

Check Your Credit Score

Before applying for a loan and certainly before ever making an offer on a house, you should know your credit score. Why is your credit score important? Well, it’s not only the difference between getting a low-interest rate on a home loan versus a high one, but it will also directly impact how much a bank or lender will actually loan you. There are several websites you can use to check your credit score, here are a few to consider: TransUnion, Equifax, Experian.

You can check your own score as much as once a day without affecting your credit, also known as a soft inquiry. Hard inquiries are when financial institutions check your credit score, typically when you’re applying for a loan or credit card. Hard inquiries lower your credit score a few points, so try to keep hard inquiries to a minimum.

Improve Your Credit Score

Maybe you just checked your credit score and realized it’s not as high as you had expected. Don’t worry, there are a few things you can do now that will help raise your credit score so you can capitalize on a great interest rate.

Though you can easily implement steps to help your credit score, fixing or raising a credit score doesn’t happen overnight. It’s imperative to start now so when you go to apply for a home loan your credit score will (hopefully) be where you want it. Here are three tips to help improve your credit score, and recommended by John Heath, Directing Attorney at Lexington Law:

  • Obtain and Closely Review Your Free Credit Report: In order to improve your credit score, you first need to know what information is on your credit report. The Fair Credit Reporting Act (FCRA) gives you the option to obtain a free credit report from each of the three nationwide consumer reporting companies once every twelve months. Your credit report contains information including your current and past residences, how you pay your bills, bankruptcies, foreclosures and more. Obtaining and understanding the information on your credit report will help you know what you may need to address in order to improve your credit score.
  • Use a Credit Report Repair Company to Dispute Errors: Your credit history is 35 percent of your FICO score, and according to a 2013 study by the Federal Trade Commission (FTC), more than 40 million Americans have something that is incorrect on their credit report. While a late payment or derogatory mark from a creditor may seem harmless, it can have long-standing consequences, in some instances staying on your report for seven years. If you have errors on your credit report, consider working with a credit repair company, who can navigate the complexities of credit repair, contact the credit bureaus on your behalf and help remove any errors as quickly as possible.
  • Spread Credit Card Debt Across Multiple Cards: If any of your credit cards are close to the maximum utilization point, it will be a red flag to lenders, who see this as an indication that you could be having financial issues. If you have multiple cards, spreading the balance out between them could make sense. For example, instead of having one card that is 90 percent maxed out while two other cards have a zero balance, having a 30 percent balance on each card can help your credit score. Reducing overall debt is always the best option, but spreading out your balance can have a positive impact.

“Improving one’s credit score may take time, but it can be done. Bad credit is not irrevocable,”said Heath. “Developing good habits and repairing your credit report will help increase your credit score so you’re able to secure a home loan or a great interest rate with confidence.”

Know What You Can Afford

The best way to determine how much house you can afford is to simply use an Affordability calculator. Though calculators such as these do not necessarily account for all of your monthly expenditures, they certainly are a great tool for understanding your larger financial situation. 

After you figure out what you can comfortably afford, you can then start online window shopping for houses and really begin to narrow down what you want in a house versus what you can afford. Are you looking at specific neighborhoods? How many bedrooms do you want? Do you need a large yard, big deck, swimming pool, man cave, she shed, etc?

Understanding what you can afford in the area you want to buy will help keep you grounded and focused on what you actually want in a house versus what might be nice to have.

Read this guide for more information about all of the important factors to consider when calculating the amount you can afford when purchasing a home – How Much House Can I Afford.

 Save Up For a Down Payment

Unless you want to pay Private Mortgage Insurance (PMI), you really want to save up for a sizable down payment. PMI is an added insurance charged by mortgage lenders in order to protect themselves in case you default on your loan payments. The biggest problem with PMIs for homeowners is that they usually cost you hundreds of dollars each month. Money that is not going against the principal of your mortgage.

How much should you save for a house? Twenty percent down is typical with most mortgage lenders in order to avoid paying for PMI. However, there are other types of home loans, such as a VA loan if you have served in the military and qualify, that may allow you to put down less than twenty percent while avoiding PMIs altogether.

As an added benefit to having a sizable down payment, you may also receive a lower interest rate that will save you tens of thousands of dollars in interest over time. So start saving now!

Build Up Your Savings

Lenders like to see a healthy savings account and other investments or assets (i.e. 401k, CDs, after-tax investments) that you can tap into during hard times. What they really want to see is that you are not living paycheck to paycheck. A healthy savings account and other investments are a good idea in general as it will help you establish your future financial independence, but it is also a necessary item on your checklist of what you need to buy a house in 2019.

Have a Healthy Debt-to-Income Ratio (DTI)

Another key component banks and other lenders consider when issuing loans, and at what interest rate, is your debt-to-income ratio. The debt-to-income ratio is a lender’s way of comparing your monthly housing expenses and other debts with how much you earn.

So what is a healthy debt-to-income ratio when applying for a home loan? The short answer is the lower the better, but definitely, no more than 43% or you may not even qualify for a loan at all. There are two DTIs to consider as well.

The Front-End DTI: This DTI typically includes housing-related expenses such as mortgage payments and insurance. You want to shoot for a front-end DTI of 28%.

The Back-End DTI: This DTI includes all other debts you may have, such as credit cards or car loans. You want a back-end DTI of 36% or less. A simple way to improve this DTI is to pay down your debts to creditors.

How do you calculate your DTI ratio? You can use this equation for both front-end and back-end DTIs:

DTI = total debt / gross income

Budget for Extra Costs

There are a lot of little costs that go into buying a house that are overlooked by new home buyers all the time. Though there are some things, such as sales tax and home insurance, that can be wrapped into a home loan and monthly mortgage, there are several little things that cannot be included into the home-buying package and need to be paid for out of pocket.

Though these items can range in price depending on the area, size and cost of the house your buying, here is a list of extra costs you should consider (not all inclusive):

  • Home Appraisal Fee
  • Home Inspection Fee
  • Geological study
  • Closing costs*
  • Property taxes**
  • Home insurance**
  • Utility hookup/start fees
  • HOA fees
  • Home remodeling/updating
  • Existing propane gas

*Closing costs can sometimes be wrapped into the home loan, depending on the agreement with your lender.**Property taxes and home insurance can be paid separately or your lender could include it into your monthly mortgage payment.

Don’t Close Old Credit Card Accounts Or Apply for New Ones

Closing a credit card account will not raise your credit score. In fact, in some cases, it may actually lower it. Instead, try to pay down the balance as much as you can, while continuing to make your monthly payments on time. If you have an old credit card you never use anymore, just ignore it, or at least don’t close it until after you have purchased your new home.

Opening new credit cards before buying a home is also not a good idea. You don’t want creditors checking your credit or opening new cards under your name, as you may lose some points on your credit score.

The absolute worst thing you can do is max out one of your credit cards, even if the limit on the card is low. If you do, your credit score may plummet. Try tackling your credit cards with the highest interest rate first, then as one gets paid off, focus on the next card until you’re free and clear.

A Solid Employment History

If you haven’t gotten the picture yet, lenders like consistency, including your employment history. Lenders like to see a borrower with the same employer for about two years.

What if you have a job with an irregular or inconsistent pay schedule? People with jobs such as contract positions, who are self-employed, or have irregular work schedules can still qualify for a home loan. A mortgage known as a ‘Bank Statement’ mortgage is becoming rapidly popular with lenders as more self-employed or what has been referred to as the ‘gig economy’ has taken off.

Know the Difference Between a Fixed Rate and an Adjustable Rate Mortgage

The difference between these two types of mortgage rates really lies within their names. A fixed rate loan is exactly that, an interest rate that will never change the moment it’s locked in. You will pay the same amount the very first month you pay your home loan and will continue to pay that same exact amount over the course of thirty years (or however long the loan term is).

An adjustable-rate mortgage (ARM) is typically a mortgage that starts out as a lower rate than fixed interest rates but then is adjusted each year typically resulting in a rate higher than a fixed rate. A 5-1 ARM is a popular mortgage offered by lenders, which is a hybrid between fixed and adjustable rate mortgages. Your mortgage would start out at a lower fixed rate for the first five years, then after that time period has elapsed, the rate would then be adjusted on an annual basis for the remainder of the loan term.

Follow Interest Rates

It is important to know what interests rates are doing. The big question is are they on the rise or are they falling?

When the economy is good the Federal Reserve typically raises the interest rate in an effort to slow down economic growth in order to control inflation and rising costs. When the economy is in the dumps the Fed does the exact opposite. They lower the interest rate in order to entice more people to make larger purchases that require loans (i.e. land, cars, and houses) to help stimulate the economy.

As new soon-to-be homeowners, it’s a good idea to know how the overall economy is doing, and more importantly, how it’s impacting the interest rates you’ll soon be applying for. In 2018, after years of bottom of the barrel interest rates, the Fed raised interest rates three times and is projecting to raise it three more times in 2019.

Why are small hikes in interest rates so important to you? To put it into perspective, even a one percent increase in your interest rate on a home loan is the difference of paying or saving tens of thousands of dollars in interest payments on your home loan over time.

Know How Much Time it Takes to Buy a House

The home buying process from start to finish is time-consuming and very relative to individual circumstances and the housing market in your area. However, there are some general universal constants that you can expect, such as a cash offer on a house is usually much quicker than a traditional loan, and if there is a perfect house in a good neighborhood and at a great price, you better expect competition and added time for a seller to review offers.

Depending on the housing market in your area and possibly which season you’re buying in, it can take you a couple of weeks to find a home or more than a year. But after you find your home you can typically expect the entire process from making an offer on a house to walking in its front door, to be as little as a few weeks to a couple of months on average.

Find a Knowledgeable Real Estate Agent

There are several ways to find a knowledgeable real estate agent. Many people rely on recommendations from friends and family, while others look to online reviews. While both of these scenarios work really well and can land you a great real estate agent, the reason these agents rise above the others as the best of the best or the crème de la crème is because of their intentions.

A good real estate agent isn’t trying to get you into a house as quickly as possible so they can earn a commission. Instead, you want an agent that will act as your guide through the home buying process, while having your best interests in mind. A good agent will be able to tell you straight if they think a house is a good fit for you, or if you should keep looking. They should also be expert negotiators so that you get the best deal possible.

Find a Mortgage Lender

There are a few things to keep in mind when researching a mortgage lender. The first thing that comes to most people’s’ minds is what mortgage rate can they get. You may have to shop around to find the best rate because lower the rate the more money you save.

Secondly, how does that mortgage lender rate compared to other lenders? By looking at positive and negative online reviews you can usually establish a theme pretty quickly of the strengths and weaknesses of the lender, and what you can possibly expect for a level of service down the road.

Ask the lender what their average length of time is to close on a house after the offer has been accepted?  A good lender versus a bad one can be the difference of moving into your new home two to four weeks earlier. You want to find out how streamlined their processes are.

Get Pre-approved

When being approved by a mortgage lender, you should be aware that there is a small but relevant difference between the typical fast preapproval for a home loan versus an underwritten pre-approval.

The fast pre-approval usually encompasses a credit report and a loan officer review and can be done in less than a couple of hours. This basic pre-approval allows you to quickly know how much you can afford and then make an offer on a house that may have just come on the market.

The underwritten pre-approval usually takes about twenty-four hours and includes a credit report, loan officer review, underwriter review, and a compliance/fraud review. Though this process takes longer, your offer on a house is actually stronger. Eventually, if you’re planning on buying a house, you will have to go through the underwritten pre-approval process anyway, so it’s better to jump on it from the start.

Research Neighborhoods or Areas You Want to Live

There are many variables to think about when researching your future residents. The key to beginning your research is to determine those variables most important to you. Are you looking for a good school district, a large house, convenience to commuter options, or a specific neighborhood that is extremely friendly and ranks high on Walk Score?

Your real estate agent will most likely tell you to figure out your list of the things you absolutely want in a house versus the extra features that you would like to have, but wouldn’t deter you from a house if it wasn’t there.

Your list will help your agent narrow down the number of houses they’ll show you, saving you time by only showing you houses you’d actually be interested in.

Shop For Your Home and Make an Offer

Now that you know where you want to live and you’re pre-approved, the fun begins. You get to look at houses! Once you find the house you know would be a great fit for you and your family, you’ll want to make an offer.

There are numerous variables to consider and hopefully, your knowledgeable real estate agent will help you through this process. Understanding the market conditions, how houses have been selling in the neighborhood and at what price (above or below asking), and knowing if there are other competing offers will help you assess and determine how you’d like to make an offer.

Negotiating an offer on a house can be emotionally taxing, so do your research and rely on your agent’s advice so you come to the table prepared.

Get a Home Inspection

Congratulations are in order! The sellers have accepted your offer. Now you want to get the home inspected to make sure there are no underlying issues that could cost you money down the road, such as a bad roof or foundation. Usually, a home inspection is a contingency built into the initial offer, and your real estate agent can help you set this up. However, it is recommended to hire an inspector that is certified by a national organization (such as ASHI or Inter-NACHI). Though you can waive this contingency if you’re trying to make your offer more competitive in a hot market. Just be aware that if you do waive a home inspection contingency, you may be taking on considerable risk.

There are several types of home inspections, but in general, a typical home inspection involves a certified inspector that will go in, around, under, and top of your house looking for anything that could be of concern, such as structural or mechanical issues. The inspector would also look for safety issues related to the property. Though they will go into crawl spaces and attics as part of their inspection, they will not open walls. They will inspect the plumbing and electrical systems and should point out any defect in the property that could cost money down the road for the homeowner.

Then they will put their findings into a nice written report for you with pictures, which then basically becomes a miniature instruction manual for your house. No house is perfect, but the report will give you a great snapshot of the property at the time of the inspection. If there are fixes that need to be addressed, this report will certainly let you know.

You should also know that the sellers are not required to make any repairs to the property. However, you can request them through your real estate agent, which will let you know what repairs are reasonable or not.

Have the Home Appraised

Home appraisals are an important part of the process because oftentimes house prices can quickly skyrocket when the housing market is hot, and banks do not like to loan out more money than what a home is worth. A home appraiser will not only tell you what the home is actually worth for the area and for the current housing market, but this appraisal will also directly affect the size of loan the bank will give you.

If the home appraisal comes back and states that the house is worth $300,000, but you made an offer of $310,000, the bank will most likely only lend you $300k. You will then either be stuck with paying the additional $10k out of pocket, or you may try to renegotiate the price with the sellers to see if they would be willing to come down. Or you may lose the house altogether.

Also, the mortgage lender will usually set up the home appraisal so you can take this time to focus on other home-buying tasks that need to be finished up.

Close the Sale and Sign The Papers

Congratulations, you’re a homeowner! Your real estate agent should help you map out the last details, such as when and where you should sign all the papers to take ownership of the house and, of course, the handing over of the keys. Welcome to your new home.

 

Written by guest author Jeff Anttila | December 4, 2018