Beware the Home Inspection!

By
Mortgage and Lending with Homebridge Financial Services NMLS 210215

What?  Home inspections are a good thing aren't they? 

Of course home inspections are a good thing.  Any smart buyer would get one.  It only makes sense to make sure you understand the condition of a purchase as big as a home.  Why beware?

Because, your lender could require a copy.  Again, this is not automatically a bad thing.  The lender is concerned about the condition of the collateral on your loan.  They want your home ownership to be successful, and not end up as one of the many that are being foreclosed on.  They also don't want to end up paying for repairs that a buyer thought they could handle, but didn't when the house ends up being foreclosed on. 

So, when can it be a bad thing?  When the lender goes beyond the scope of the loan.  EVERY house has a few issues.  Many buyers understand this and are willing to tolerate a few small things.  But, your lender may not.  The lender should be concerned with "Safety and Soundness" issues.  In other words, is the house safe or a hazard for people?  Is the house "sound", or do all it's systems to protect it's longevity function properly (i.e. does the roof leak?  is the electical ok? etc.)?  These are reasonable requirements.  If the house has a leaky roof, an unsafe deck or termites, it makes sense that the lender would require these problems be remedied.

But, some "underwriters" (the people who approve or deny loans), go beyond safety and soundness.  This can be an issue.  Requiring the nail holes from where pictures have been hung is extreme and can endanger your transaction.  Many small issues like this can be required by a "particular" underwriter.

Three answers to this problem:

1 - Make sure your home inspector creates a separate pest and dry rot report.  This ensures that the lender doesn't have to request the whole report when the lender just wants to see the pest and dry rot report.

2 - Don't hide flaws, by not disclosing them, or by trying to hide earnest money addendums that address issues.   A borrower certifies that there are no "omissions" of important facts on the loan application.  Mortgage fraud is very serious and dealt with via fines & prison or both!

3 - Make sure you deal with a lender who understands that safety and soundness are the issue, not perfection!

Comments (40)

Coleen DeGroff
Coldwell Banker M.M. Parrish Realtors - Gainesville, FL
Haile Plantation Real Estate - Gainesville FL

Brett - Great points! Ultimately though it is out of our control re working with lenders who understand difference between "safety and soundness" and "perfection". We can counsel buyers re preferred lenders, but it is their decision on who they use.

Apr 21, 2010 03:29 PM
Teral McDowell
Referral Patners LLC - Murphy, TX

Brett, sounds like some good advice to follow, thanks for sharing.

Apr 21, 2010 03:34 PM
Sharon Parisi
United Real Estate Dallas - Dallas, TX
Dallas Homes

Brett, thanks for your words of wisdom and experience.  I have had underwriters question items on inspection reports.

Apr 21, 2010 03:45 PM
Tammie White, Broker
Franklin Homes Realty LLC - Franklin, TN
Franklin TN Homes for Sale

Haven't see this happen here yet and I hope we don't.

Apr 21, 2010 04:27 PM
Steven L. Smith
King of the House Home Inspection, Inc. - Bellingham, WA
Bellingham WA Home Inspector

Around here most do not break-out the pest part since the state WDO laws allow it all to be combined. I have done the federal NPMA 33 a few times, or broken out only WDO, but only had that request twice I think

Apr 21, 2010 04:50 PM
J. Philip Faranda
J. Philip Faranda (J. Philip R.E. LLC) Westchester County NY - Briarcliff Manor, NY
Broker-Owner

We are in the middle of a deal where the lender got a hold of the inspection and complications ensued. NOT FUN. 

Apr 21, 2010 05:19 PM
Pam Turner, REALTOR®, e-PRO®, SFR
Century 21 Belk Realtors Dalton GA - Dalton, GA

That hasn't happened here as far as I know, but I wouldn't be surprised.

Apr 21, 2010 11:28 PM
Brian Madigan
RE/MAX West Realty Inc., Brokerage (Toronto) - Toronto, ON
LL.B., Broker

Douglas,

Sometimes you can have too much information. It's often interesting to see the reports prepared by several different home inspectors about the same house conducted within 24 to 48 hours of each other.

You can run into this situation with multiple offer situations.

Brian

Apr 22, 2010 12:41 AM
Chuck Gollay
Exit Realty Paramount - Traverse City, MI

You're correct -- sometimes the underwriters concern themselves with issues that go way beyond safety and soundness.  However, I am more concerned about items noted by the appraiser than the home inspector.  Appraiser-noted issues soon become issues we have to deal with if we want the transaction to close, and I have seen some doozies. 

Apr 22, 2010 01:41 AM
Anonymous
Frank

1 - Make sure your home inspector creates a separate pest and dry rot report.  This ensures that the lender doesn't have to request the whole report when you just want them to see the pest and dry rot report.

2 - Don't hide flaws, by not disclosing them, or by trying to hide earnest money addendums that address issues.   A borrower certifies that there are no "omissions" of important facts on the loan application. 

 

You sir, seem to be advocating fraud and then covering yourself!   Structural issues are NOT covered in 'dry rot and pest' reports.  How can you possibly condone this and put it in a public blog.   

Apr 22, 2010 02:00 AM
#30
Shawn Murray
Omaha, NE

I have also had an underwriter require some small issues be resolved before they approve the loan.  Now I can see that ir it is a safety or structual issue that we can deal with, but painting a home just because it has a few spots that are bad. 

Apr 22, 2010 02:00 AM
Joe Pryor
The Virtual Real Estate Team - Oklahoma City, OK
REALTOR® - Oklahoma Investment Properties

In Oklahoma we always have separate reports. I have been seeing some strange request come back deom underwriting, and unfortunarely often at the last moment. This is not acceptable.

Apr 22, 2010 02:37 AM
Brett Reichel
Homebridge Financial Services - Rancho Cucamonga, CA
MLO 210215

Bob & Frank -

You are right.  I've revised the blog to more clearly indicate the message I was trying to get across and not contradict myself. 

Lenders don't always want to see the whole report.  This can be as much of a problem for them as with you.  Let's say they only require "Safety & Soundness" issues to be repaired, but the investor they are trying to sell their loan to wants to require cosmetic issues to be repaired (which goes beyond the reps and warrants of their agreement), because the clerk that handles buying the loans doesn't understand houses.  This could cost the lender 10's of thousands of dollars if the loan has to go into the "scratch and dent" market.

A separate P & D report, the way home inspections used to be done, would allow the lender to request what they wanted, not the whole report.  Additionally, they are going to rely on the appraiser for their traditional assessment of the condition of the property.  And, by the way Frank, pest & dry rot problems are "structural problems" of the worst kind....but you are right, other structural issues should NOT be hidden, and I don't want them hidden, because that will undermine both the success of my home buyer, and the lender I'm selling the loan to.  And without them?  I'm toast...

Apr 22, 2010 04:04 AM
Pamela Anastasia
Anastasia Marketing Consultants, Inc. - Saint Augustine, FL

picture holes? Wow! Transactions are fragile enough...

Apr 22, 2010 05:41 AM
Jean Hanley
Coldwell Banker Kivett Teeters - Hemet, CA
Specializing in Folks Who Want To Buy/Sell Homes

Wow, I have never had an underwriter ask for a copy of a home inspection yet, but living in California, I'm sure it will be the next thing.  We love to complicate things here.  lol

Apr 22, 2010 08:49 AM
Damon Gettier
Damon Gettier & Associates, REALTORS- Roanoke Va Short Sale Expert - Roanoke, VA
Broker/Owner ABRM, GRI, CDPE

Great post.  I don't know why I hadn't thought of writing about that but you did so I reblogged!

Apr 22, 2010 09:06 AM
John Elwell
CENTURY 21 Bill Nye Realty, Inc. - Zephyrhills, FL
You Deserve a Full-Time Agent, Not Reduced Results

Have never had a lender demand an inspection, except for a WDO, and now even those seem to be waning. The FHA and VA do a minor inpsection when they do their appraisals, but it is really not very comprehensive. The only way a lender here gets involved in an overall inspection is when the home is over 50 years old and they require a 4 Point inspection of the roof, electrical system, heating/cooling system, and plumbing systems for insurance purposes. The goal is to get the home insured, not to directly get the loan. Of course, without insurance, no loan. So in a way the lender is making it mandatory, just not directly.

But so far no lender I have dealt with here in Florida has required anything beyond a septic tank inspection on a home that had been vacant for more than 6 months.

Apr 22, 2010 11:01 AM
Cheryl Ritchie
RE/MAX Leading Edge www.GoldenResults.com - Huntingtown, MD
Southern Maryland 301-980-7566

I like the safety and soundness issue point of your post. Otherwise, the intervention could get way out of hand.

Apr 22, 2010 11:37 AM
Charles Stallions Real Estate Services
Charles Stallions Real Estate Services Inc - Gulf Breeze, FL
Buyers Agent 800-309-3414 Pace and Gulf Breeze,Fl.

Be careful of what you write in a contract because someone will always call you on it. I look for tougher rules and regs as time goes on.

Apr 22, 2010 03:13 PM
Christine Donovan
Donovan Blatt Realty - Costa Mesa, CA
Broker/Attorney 714-319-9751 DRE01267479 - Costa M

I haven't run into this issue yet and hope that I don't.  Our termite/wood destroying pest inspections are separate from third party inspections.  Maybe this is the difference.

Apr 23, 2010 04:37 PM