Deal-Breakers? Lenders Supplant Home Inspectors for the Role
Its pretty much a given that most real estate agents looks at the buyer's home inspection as the last potential monkey-wrench to be thrown into their real estate deal. And, while wearing my home inspector hat, I've been in more than one conversation with an agent who feels compelled to remind me of the fact that home inspectors are "deal-breakers". However, as a home inspector I'm relieved to say that a new phenomenon has arisen with real estate transactions that has taken the pressure off us as the deal-killers. Its now the mortgage lender.
Lenders seem to have suddenly found Religion. What I mean by this is that due to the well-documented real estate implosion and the dubious role some lenders had played in stoking the over-inflated real estate bubble, lenders are now super-critical of not only obsessively documenting the credit-worthiness of borrowers, but even more so, verifying that the homes being backed by their mortgage have the underlying value (duh). They do not want to be chastised as the bad guys, forcing their onerous mortgages on unsuspecting and unworthy buyers, something that the media has really played on recently. So, they no longer rely on buyers to supply their own income information (their position is that "buyers are liers"; they get your past tax returns directly from the IRS now) and they no longer play fast and loose with the appraisal (its a sad fact that some banks unfairly dangled the "future business" carrot in front of appraisers, in return for a softball appraisal that would grease the loan approval process). Everyone in the lending process is now diligently and nervously covering all of ther bases, especially appraisers and inspectors. What this means is that mortgage underwriters, who would formerly glossed over the paperwork and perhaps obsessed over a buyer's late electric bill payment from five years earlier, now scrutinize the termite inspector's report and the appraiser's report with fear and loathing. (They do not yet require a look at the buyer's home inspection report - guess what's next?) Anything that could be construed as a risk results in the loan process grinding to a halt. Hence, the new Deal-Killers.
News flash: In one recent week, I received two separate calls from buyers' real estate agents, frantic that their hard work was in jeopardy due to a lender balking at approving a mortgage because of an issue the lender was apprised of, relating to the home. I'll give you two examples.
Potential Deal-Breaker #1: A home inspection client and their agent called me the Monday before a scheduled end of week closing, to relate that their Credit Union was rejecting their mortgage application because the appraiser included within his appraisal writeup some language about structural concerns. The appraiser was simply being naturally cautions - another fallout of the real estate environment - because he had recently heard from someone in the neighberhood claiming that the homes in the area "had no foundations". This would never have required more than a cursory phone call by the ambivalent lender in the past, but in this environment, the cautionary language was treated about as warmly by the credit union as a loose jackhammer in a minefield - the deal was D-E-A-D unless the loan underwriters were appeased. As the home inspector, I performed visual inspections only, otherwise I would go outside the bounds of the NJ state statute for licensed home inspectors , not to mention my E&O insurance coverage and professional liability risk. Foundations are buried beneath the ground, and as a home inspector I cannot tell if the home is sitting on a concrete footing or mozzarella cheese, and neither can the appraiser. Fortunately, as a licensed professional engineer who also does structural evaluations through my engineering company, I was able to change hats and do some probing and shoveling of the ground. Lo and behold, a foundation! By Tuesday evening, my foundation evaluation report was in the hands of my client and presumably shortly thereafter, the credit union.
Potential Deal-Breaker #2: Yet another credit union got a case of the jitters and was thus jeopardizing an impending real estate closing because they were informed through the buyer's termite inspection report that there was "suspected structural damage possibly caused by termites and there is no evidence of a past treatment". Again, the termite inspector was being cautious because they cannot always tell if the suspect wood is structural or not, and also cannot do destructive evaluations to see what is behind an area of suspected damage that is concealed. A contractor was hurredly called in to do structural repairs, and I was asked to verify that the work was performed in a workmanlike manner. I met on-site with the parties prior to the work commencing and while I clearly saw some rot, the questionable wood turned out to be baseboard and window trim and not at all structural. I wrote up a report stating that needed repairs were by all accounts cosmetic, and the deal was back on track.
What's to be leared from this? Buyers, don't wait to the last minute for your inspections, it leaves very little time to get a prfessional back in to do further evaluations and het things back to the bank by the closing date. Second, if your home inspector or termite inspector identifies potential structural issues, get clarifications from them and if needed, perhaps a second opinion from a structral engineer to help minimize the uncertainty. Sellers, it helps to get a sellers inspection prior to putting the home on the market, so any bank or insurance company hot-button issues (structural defects, knob and tube wiring, buried fuel oil tank, roof issues etc.) are addressed BEFORE the buyers and the bank bring in their people to evaluate your home. This way, issues can be resolved way before crunch-time, when deals can become shaky.
Coming up soon - Insurance companies get Religion. (Can you spell A-I-G?) Stay tuned!
Lenders seem to have suddenly found Religion. What I mean by this is that due to the well-documented real estate implosion and the dubious role some lenders had played in stoking the over-inflated real estate bubble, lenders are now super-critical of not only obsessively documenting the credit-worthiness of borrowers, but even more so, verifying that the homes being backed by their mortgage have the underlying value (duh). They do not want to be chastised as the bad guys, forcing their onerous mortgages on unsuspecting and unworthy buyers, something that the media has really played on recently. So, they no longer rely on buyers to supply their own income information (their position is that "buyers are liers"; they get your past tax returns directly from the IRS now) and they no longer play fast and loose with the appraisal (its a sad fact that some banks unfairly dangled the "future business" carrot in front of appraisers, in return for a softball appraisal that would grease the loan approval process). Everyone in the lending process is now diligently and nervously covering all of ther bases, especially appraisers and inspectors. What this means is that mortgage underwriters, who would formerly glossed over the paperwork and perhaps obsessed over a buyer's late electric bill payment from five years earlier, now scrutinize the termite inspector's report and the appraiser's report with fear and loathing. (They do not yet require a look at the buyer's home inspection report - guess what's next?) Anything that could be construed as a risk results in the loan process grinding to a halt. Hence, the new Deal-Killers.
News flash: In one recent week, I received two separate calls from buyers' real estate agents, frantic that their hard work was in jeopardy due to a lender balking at approving a mortgage because of an issue the lender was apprised of, relating to the home. I'll give you two examples.
Potential Deal-Breaker #1: A home inspection client and their agent called me the Monday before a scheduled end of week closing, to relate that their Credit Union was rejecting their mortgage application because the appraiser included within his appraisal writeup some language about structural concerns. The appraiser was simply being naturally cautions - another fallout of the real estate environment - because he had recently heard from someone in the neighberhood claiming that the homes in the area "had no foundations". This would never have required more than a cursory phone call by the ambivalent lender in the past, but in this environment, the cautionary language was treated about as warmly by the credit union as a loose jackhammer in a minefield - the deal was D-E-A-D unless the loan underwriters were appeased. As the home inspector, I performed visual inspections only, otherwise I would go outside the bounds of the NJ state statute for licensed home inspectors , not to mention my E&O insurance coverage and professional liability risk. Foundations are buried beneath the ground, and as a home inspector I cannot tell if the home is sitting on a concrete footing or mozzarella cheese, and neither can the appraiser. Fortunately, as a licensed professional engineer who also does structural evaluations through my engineering company, I was able to change hats and do some probing and shoveling of the ground. Lo and behold, a foundation! By Tuesday evening, my foundation evaluation report was in the hands of my client and presumably shortly thereafter, the credit union.
Potential Deal-Breaker #2: Yet another credit union got a case of the jitters and was thus jeopardizing an impending real estate closing because they were informed through the buyer's termite inspection report that there was "suspected structural damage possibly caused by termites and there is no evidence of a past treatment". Again, the termite inspector was being cautious because they cannot always tell if the suspect wood is structural or not, and also cannot do destructive evaluations to see what is behind an area of suspected damage that is concealed. A contractor was hurredly called in to do structural repairs, and I was asked to verify that the work was performed in a workmanlike manner. I met on-site with the parties prior to the work commencing and while I clearly saw some rot, the questionable wood turned out to be baseboard and window trim and not at all structural. I wrote up a report stating that needed repairs were by all accounts cosmetic, and the deal was back on track.
What's to be leared from this? Buyers, don't wait to the last minute for your inspections, it leaves very little time to get a prfessional back in to do further evaluations and het things back to the bank by the closing date. Second, if your home inspector or termite inspector identifies potential structural issues, get clarifications from them and if needed, perhaps a second opinion from a structral engineer to help minimize the uncertainty. Sellers, it helps to get a sellers inspection prior to putting the home on the market, so any bank or insurance company hot-button issues (structural defects, knob and tube wiring, buried fuel oil tank, roof issues etc.) are addressed BEFORE the buyers and the bank bring in their people to evaluate your home. This way, issues can be resolved way before crunch-time, when deals can become shaky.
Coming up soon - Insurance companies get Religion. (Can you spell A-I-G?) Stay tuned!
posted by Zack | 8:37 AM
5 Comments:
Quite interesting and informative. Thanks for sharing.
Very good coverage of very critical issues one must pay attention to when making home deals.
This discussion is going to be very helpful all those who are confronting with this proble.Good post.
My Daughter, a newbie home buyer was recently asked by the Credit Union for a copy of her home inspection report. The request was informal i.e. not in the required docs. Being a newbie she emailed the report. Next thing you know an underwriter presents her with a punch list of items that must be addressed before the loan can go through! NONE of these items are structural or in anyway affect the integrity of the house. In addition, none of these items appeared on the bank's appraisal report. "Guess what's next" is already happening! Now borrowers will be denied a loan for a perfectly fine house because of carpenter bee damage to the front porch fascia or a poor DIY trim job in the master bath!
Awsome page thanks
Ed
bunahhomeinspections.com
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