Resalesby Peter G. Miller
Peter G. Miller
OurBroker®
If you"re reading these words, then it"s fairly clear that you"ve not been done in by the end of the world, the Y2K bug, or a variety of computer viruses allegedly set to go off at the start of the New Year. Having survived this long, it"s now time to move on safer subjects such as how to buy a house and not lose you shirt.
Even though real estate has changed substantially in recent years with the use of new technologies, the fact remains that buying a home still requires a series of traditional protections and defenses. Why? Because buying a home is inherently complex and professional assistance is both appropriate and reasonable.
In practical terms, this means that if you"re a buyer there are a number steps you should take to protect your interests. As a place to start, here are several basic issues to consider:
Get a home inspection. We had been making great progress on this issue until HUD stepped in last year and told consumers that FHA appraisers would be required to provide a "new three-page form describing the physical condition of a home in unprecedented detail."
The result of HUD"s action has been steep price increases for FHA appraisals (because more is demanded of appraisers and they have more liability) as well as the thought that, "gee, who needs to spend money on a home inspection if the appraiser is doing such work?"
Despite HUD, appraisers are not trained home inspectors. Appraisers offer independent home valuations. Appraisers do not open electrical service parts, climb on roofs, or look into furnaces. If you"re buying a single-family home, spend the money and make your purchase offer conditional on a home inspection by a professional inspector satisfactory to you.
What about new homes? You certainly want a home inspection as part of the final walk-through -- make sure you allow several hours for this process. But, even better, use a three-step process for new homes: Inspect once the foundation is in place, inspect when the walls are up but not closed, and inspect before closing.
Get an appraisal. An appraisal satisfactory to the lender is required when a home is financed by a traditional mortgage source. Consumers pay for this appraisal, but lenders get to choose the appraiser.
Independent appraisers assure lenders that a home is not over-priced and thus that they are not making an inflated and risky loan. If you"re buying with seller financing (where there is no outside lender) or all-cash, you still need to make your offer dependent on an appraisal satisfactory to you. See your broker for details.
Get a termite inspection. Wood-boring inspects cannot demolish a home with cartoon-like speed, but they can cause damage. Before or at closing, lenders will want evidence showing that the property is free and clear of active termite infestations.
It"s sometimes asked why a termite inspection is needed for new homes. It may seem like an odd requirement at first, but the concern is that lumber may be infested before it"s cobbled together to create the home.
Get a title examination. A home purchase is a huge investment, so it makes sense to make sure that the seller actually owns the property and has a right to sell it. A title inspection looks at the property"s history as it is shown on public records to establish a trail of ownership.
Get title insurance. About that title examination --it"s based on a check of public records, but those records may be wrong or incomplete. It could be that a former owner was insane, an alcoholic, drug-addicted, a bigamist, or not legally competent -- factors which may all make it difficult to offer good and marketable title when it"s time for you to sell, thus reducing your ability to make a sale -- or a profit.
Title insurance is a one-time charge that protects against title claims. For details, ask your broker and the party that conducts closing. Ask about "re-issue" rates (you may be entitled to a discount under certain conditions), endorsements, limitations, and exceptions. If you"re in Iowa, be aware that title insurance is generally not used there -- ask how you are protected in the event of title problems.
Get a survey. A survey shows the quantity of property being sold and it"s location. A survey will show whether "your" plot improperly includes someone else"s land -- think of a garage or fence that extends six inches over a property line and the ability of a neighbor to charge for the use of that land or to order the removal of your improvements. A survey can also show "encroachments," the improper use of your land by someone else.
Get a limited "warranty." There are warranties for new homes, and service contracts for existing properties. What individual policies include varies by state and by program, so you need to ask brokers for details -- what is covered, what is not covered, how long coverage lasts, what costs you face if you have a claim, whether you can continue an existing home policy after the initial term, etc.
Do these various inspections and checks cost money. You bet. Are they worth it? Sure.
The Common-Sense Mortgage
The latest edition of The Common-Sense Mortgage -- in its second printing since September -- is now available in bookstores online and off. In print for nearly 15 years and widely recognized as the standard consumer guide to real estate financing, it"s described by syndicated columnist Robert Bruss as "an encyclopedic, detailed summary of just about everything real-estate investors, agents, lenders and borrowers want and need to know about mortgages."
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"This continues to be the most, lucid, comprehensive treatment of the subject on the market," says The Real Estate Professional. "If you want solid, reliable information about residential real estate financing, written in a thoughtful, convincing style, this is your source."
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Question Of The Week
Q: There used to be a lot of seminars and programs recommending buying real estate with no money down. Is that still a good strategy?
A: Given that we have a large number of loans available for owner-occupied properties with three to five percent down and sometimes less, homebuying is well within the realm of affordability for most potential purchasers.
Buying with no money down -- within certain circumstances -- can make sense today, provided buyers realize less money down means a bigger mortgage and higher monthly payments; that buying with no money down and paying above-market prices is rarely a good deal; and that you are unlikely to make $12 million by next Friday with the no-money-down ideas once hawked on late-night television.
Weekly Resource
It will happen. At some point you will want to retire and at that moment you may wonder what pittance Uncle Sam will make available to you in your later years. The Social Security Administration can provide the answers at its useful web site, something to check at least annually.