Mountain Mortgage Guy: Appraisals, inspections are needed when buying a home
If you are buying a home and getting a loan to do so, then one of the first steps you will go through is having an appraisal done to determine the value of the property. But all too often, homebuyers, sellers and Realtors assume that the only thing to look at is the value of the home, and if it meets the purchase price then all is well and “that one is off the list.”
But that is not always the case. In some cases, notably for those who get an FHA loan, the appraiser is required to watch out for any health and safety issues as well as deferred maintenance. Issues such as missing shingles, peeling paint or rotting wood can be deemed to be deferred maintenance. Flaking paint (if the age of the home is pre-lead-free paint) broken railings, broken stairs or crumbling walkways are deemed to be health and safety issues.
Health and Safety Issues
Generally the home buyer cannot close on his home until health and safety issues have been addressed. Deferred maintenance issues can be addressed after the closing by setting up an escrow account to set aside funds for repairs. In instances where the health and safety issues cannot be addressed because of winter weather it might be possible to escrow money, but don’t count on it.
If it is decided to escrow funds, then the homebuyer must get a couple of bids for the work and escrow 1.5 times the amount required. So if an exterior paint job costs $3,000, then $4,500 has to be set aside. The buyer, seller or Realtor may contribute to the money set aside. If there are excess funds left over and multiple parties contributed, then it is important that the escrow agreement state who gets what portion of the left over money.
The logic behind this is that FHA buyers typically use FHA because they have little down payment and might be stretched on their income to start with. They may lack the ability to make costly repairs once they are in the home. Ask any homeowner about the cost of maintaining a home and they will all agree, it costs a lot. FHA buyers are often first-time home buyers and may not grasp the true costs of homeownership extend beyond just making your monthly payment.
Many sellers do not realize that a buyer using FHA can be more demanding as to resolving issues than a conventional buyer. While conventional loans are scrutinized for glaring safety issues, deferred maintenance is generally dealt with through a downward adjustment in value.
Homebuyers should also realize that an appraisal inspection is far different from a home inspection. A good home inspector will delve far deeper into your home’s mechanical systems and structural integrity than an appraiser will. Appraisers do not, for example, examine a home’s electrical system or heating system or appliances whereas a home inspector will. The appraiser does not see the home inspector’s report, nor does the home inspector read the appraisal. Home inspectors have different training and are not concerned about the value of the home.
Chris Neuswanger is a mortgage loan originator with Macro Financial Group in Avon and may be reached at 970-748-0342. He welcomes mortgage-related inquiries from readers. His website is http://www.mtnmortgageguy.com.
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