Paying for a home inspection is like putting money in the Parking Meter

I had an interesting conversation with my buyer at an inspection a while back.

The house had very good curb appeal—-all decked out in its fall colors, and in a very desirable neighborhood—-and priced just right.

Because it was priced 100k under the typical homes in the area, it got a lot of attention and there was a lot of wondering if it was priced low for a reason—-and it certainly was.  This post is not about all those reasons, but is instead about my buyer’s unusual perspective on the inspection.  His perspective was somewhat unique as to how it related to the cost of the inspection and whether he would ultimately decide to buy the property or not.

While my gut feeling was that the property was probably not what he was looking for, what he had to say of the $525.00 inspection fee was this,  “It is just money in the parking meter.”

I thought this was a very cool way to look at it.  Can you imagine someone deciding to NOT put $.50 in the parking meter to avoid a $60.00 ticket?  (Well maybe if I forgot any change—and was in a REAL BIG hurry.)  Percentage-wise, the inspection fee is actually a smaller percentage of what they might end up “owning” had they “not put the money in the meter”—-especially when they factor in not only the cost of the home but the extra cost of repairs.

By all accounts—-inspections are dirt cheap—-cheaper than putting money in a parking meter.

Charles Buell, Seattle Home Inspector

The latest on jumbo loans

Good morning! I wanted to update you on the jumbo loan market in Bellevue, WA.

The jumbo loan market is changing. As most of you may be aware, the new conforming jumbo loan limit for King, Pierce and Snohomish counties will be $506,000 the first part of October. This is down from $567,500 and it appears Congress isn’t going to address this issue immediately. If you live in another county besides the three I mentioned above, jumbo loan limits may be different. You should be able to access your county limit via Google search.

Jumbo loans require a loan officer with knowledge and experience in this market. Although underwriting and rates have eased a bit since 2008, jumbo loans are still scrutinized. Most if not all jumbo loans done these days are portfolio’d meaning the lender chooses to not sell your loan and will retainn the servicing rights.

Jumbo loans also often have different programs that make sense. Several of my clients opt for ARM’s that are fixed for the first several years. Why? Pricing for a 5/1 ARM may be at or near 3% as compared to a 30 year fixed rate of closer to 5%. If you have a large loan (say $1 million) you stand to save quite a bit of money by opting for an ARM instead.

Another thing to be aware of is jumbo loans typically require more equity whether you’re purchasing or refinancing. I am aware of one bank that will go to 90% loan-to-value on a purchase (10% down) up to a loan limit of $506,000 plus $250,000) in our area. But you’re probably also going to need a credit score of at least 720 to qualify.

Most jumbo lenders will not go above 80% loan-to-value so you will need to have either 20% equity or a 20% down payment minimum to qualify. Be prepared to also provide documentation to include income (W-2′s and tax returns if self-employed) and assets (bank and brokerage statements) asked for. Time frame to close a jumbo loan is in all likelihood 45 days so plan accordingly.

I’m seeing an increased appetite for jumbo loans which I think is a good sign. I remember in 2008 when the credit markets shut down and every jumbo loan was 8% for a 30 year fixed mortgage. In sum, I hope this has been helpful. Feel free to contact me if I can be of further assistance. Thanks again for reading. Have a great day!

Paul McFadden

The 4 C’s of Lending

Hi all: How are you? I was thinking this morning about the 4 C’s of Lending.

Here they are. Credit, Collateral, Character, and Capacity. What do I mean by each?

1) Credit is fairly obvious. Your credit score will determine in large part the rates, terms and type of loan you have. On a residential loan, your best rate will often be if you have either a 740+ credit score for a conventional loan and a 640+ credit score for an FHA or VA loan. Credit scores less than 640 can get loans for FHA, VA or USDA but expect additional requirements to be added in most cases. The bottom line is this. If you’ve been paying your bills on time the last year or so and don’t have maxed out credit cards, your credit score should be ok; enough for you to qualify for a home loan if everthing else lines up (job, income, etc.)

2) Collateral refers to what you either have in the way of assets or equity in your existing residence. Gone are the days of no down loans (the exception is the USDA rural loan program and some local state bond programs) and 100% loan-to-value loans. You have to bring something to the table.

3) Character is really about who you are. I will occasionally field phone calls from borrowers trying to beat the system. Whether it’s buying a second home within 50 miles of your primary residence and trying to get a second home loan rate (this should be an investment property rate per Fannie Mae guidelines) or some other scheme to circumvent the system, character matters. The lenders these days didn’t just fall off the turnip truck. They check and verify and you need to be honest with everyone about what you intend to do. In fact, I’ll be a little more blunt. Please don’t call me with your schemes. In the old days, character mattered. A handshake and a look in the eye meant something. Nowadays, lenders don’t always have the ability to marshal a loan through if you’ve made a mistake (short sale for example within the last 2 years) but we do consider who you are as a part of the loan approval process.

4) Capacity refers to how much you can borrow. It’s interesting how the 4 C’s of lending point right back to how well you manage your credit. This was the way it was in the old days and we’re almost back to that point now if not already.

There you have it. Credit, Collateral, Character and Capacity are key in the lending process. Thanks for reading and good luck if you apply for a loan. We approve loans every day but I’d like to think we know what we’re doing here. Have a great day!

Paul McFadden

Do condo inspections cost less than a regular house inspection?

Most buyers expect Condo inspections to be much cheaper than regular home inspections.  For me they are somewhat cheaper, but not so much because they are condos, but more because they are smaller.

While there are many areas that are deferred to the Condo Association, it still takes a great deal of time to “describe” in the report exactly what is being deferred.  And what if I see something “wrong” in one of the deferred components?  I think it is helpful to my buyer if I note these things in the report so that the issue can be brought to the attention of the Condo Association.  These items range from safety issues in common areas, to roofs that are toast.  I want my buyer to be aware of the either the possibility of upcoming assessments or to verify that there are funds to make the repairs, and plans to make the repairs are already in place.  This might also include any time-lines for getting the repairs done.

On a condo inspection a while back, I was checking the roof when I noticed that the chimney cap was completely corroded due to the chimney being improperly lined for the two water heaters.  If you look at this picture you can see that a large metal cover has been created to cover the old brick chimney and two roof type vents have been installed to let the flue gasses out.

Rusted-out chimney cap

This chimney was originally designed for a central heating plant for the whole building—-perhaps a million BTU’s per hour or more.  The two water heaters don’t need a flue anywhere near as large as this and as a result the flue gases are not hot enough to draft out of the 44 ft tall chimney.  The result is that the flue gasses condense—turn into liquid.  This acidic moisture corrodes the metal components, as well as the inside of the chimney.

In this case it was even back-drafting at the water heaters and corroding the tanks and fittings near the draft hoods.  These are fairly new heaters and the top foot of one of the tanks was so rusted-out you could stick your finger through the metal.   This next picture shows how the condensate has eaten away the galvanized coating of the water pipe fitting at the top of the tank and gotten inside the tank liner where it is eating through the tank covering.  All the little orange specs are where the rust is just beginning to break through the surface from the inside.

Condensate damaged water heater

This next picture shows the two heaters installed side by side and the vents running to the old chimney.  Note the garbage can stuffed in the old vent location for the original furnace?  The diameter of that garbage can is still smaller than the size of the chimney but still gives you an idea of the size of the chimney flue.  One can see that it is WAY bigger than the diameter of the water heaters combined venting.

Two water heaters in a Condo Building

While these heaters are deferred to the Condo Association—this is the kind of information that I consider invaluable to my buyer—not to mention all of the occupants of the building—and therefore the Condo Association.  In this particular case the Condo Association may not be aware that it has two “new” water heaters that are in need of replacement—not to mention the issues with the chimney itself.

So while condo inspections might cost a little less than a regular house due to the smaller size, some condos that compare in size to a regular house will likely cost just as much as a regular house.

Charles Buell, Seattle Home Inspector

How mortgage interest rates are determined

Good afternoon! I hope you’re well. I wanted to touch on how mortgage interest rates are determined.

The layperson in you may not know or may think that interest rates are tied to the Federal Reserve Board and its rates.

The Federal Reserve sets short-term rates which impact lines of credit, credit cards and adjustable rate mortgages.

Mortgage interest rates that are fixed for a longer period of time (say a 15 or 30 year fixed rate) are actually determined by the yield on the 10 year treasury note plus a margin. With the recent volatility in the stock market there has been a flight to the safety of treasuries. That is why the 10 year yield has allowed for mortgage interest rates as low as 4% O.A.C. on a 30 year fixed mortgage.

Where do I see the market headed as we go forward? Although there will be big swings with rates as there were today, I expect mortgage interest rates to stay low through the end of the year now. The unsettling global news will cause investors to seek safer harbors such as treasuries.

The bottom line is a lot of people are interested in refinancing right now, either to a lower rate, a shorter term or both. If I can be of help anwering any of your questions about this, please contact me. Thanks again for reading. Have a great day!

Flipping ourselves off!

Once upon a time, when the market was REALLY HOT, a lot of the home inspections I did were on homes being “flipped.”  There is not much flipping going on any more.  These homes often had their share of issues including, shoddy workmanship and lack of building

Flipping houses

permits.  The whole idea behind the “flip” was to get it back on the market as quickly as possible to maximize profits.  The only thing standing between the flipper and the buyer was the lowly home inspector.

We always earned our fee with these houses.

At the same time this “craziness” was going on, there was another craze going on—perhaps related—-perhaps sort of the same thing.  While people were buying and flipping houses, lenders were buying and flipping mortgages.  By all accounts this did not work out too well.  While you might be able to slop a coat of paint on a house,  blow some insulation over knob & tube wiring and rotting galvanized water pipes, putting a “gold frame” on a mortgage doesn’t mean the house is “actually” worth more—-especially after all the copper wire,  copper pipes and appliances—like Elvis— have “left the building.”

It is my understanding that banks were/are able to pretty much “make up” the value of the house and sell the inflated mortgage to whomever will buy it—-and then that mortgage buyer can do the same.  Am I missing something here?

I have a “vague” idea of how capitalism works, but is it actually good judgment to allow the sale of mortgages—-at least without some “honest” means of establishing “real” value?

****

Charles Buell, Seattle Home Inspector

No Cost Ways To Improve Your Home Appeal For Buyers

Staging a home FOR SALE doesn’t mean money has to be spent. As home owners you can do several tasks to improve your home appeal for the buyers, before it goes on the market.

Here are five tips of things to do at no cost:

1. Curb Appeal – Remember that the first impressions are the most important key in selling a home. Mow, weed, rake, trim edges and over grown bushes. The house should not be hidden behind bushes. If you can’t see it, you can sell it. Hose down the walkways. Store garbage cans neatly away from the front of the house. Keep kid’s toys and bikes away.

Curb appeal is all about making the first RIGHT impressions.

2. De-clutter- Yes, you have heard this before. But REALLY de-clutter. You’re moving anyway, so pack away. Consider renting a storage unit. Donate. Closets are important and home buyers want and love storage. Empty out your closet by 60%. Keep the floors clear. The same thing is true for kitchen and bathroom cabinets.

Organized spaces look more spacious

3. Clean – By clean, I really mean deep cleaning. No one wants to walk into a dirty homes, especially bathrooms. Dirty windows stop the eyes. Clean, clean, and do more cleaning. Can’t emphasis enough.

Clean is GOLD

4. Let there be light – Do all you can do to let natural light in. Heavy drapes need to go out. The windows should not be blocked by anything. Take out window screens. Replace the burnt bulbs and go for higher wattage ones. If you have a dark corner, buy a floor up-lighter for a home improvement store. This will be the best $15 that you ever spent.

An uplighter for those dark corners

5. Eliminate Odors – Bad orders are the biggest NO! NO! Ask a friend to come over and help, since we get used to smells. If you have a baby, the diapers should be taken out right away. Avoid cooking anything with strong smells like fish and curry. Not everybody likes these smells. No smoking. If you have pets, clean their area with an enzyme rich cleaner like Folex, which you buy at any supermarket.

Bad smells keep the home buyers away

Just keep in mind, that a little elbow grease and lots of attention to detail will help you to meet your sales goal. Stay tuned to the other five no cost ways to increase your home appeal for the market.