Loans and Title Insurance

Loan Information and Title Insurance

 

 “Pre-Approved” vs “Pre-Qualified”

Do you want to get the best property you can for the least amount of money?  Then make sure you are in the strongest negotiating position possible.  Price is only one element in the negotiations, and not necessarily the most important one.  Often other terms, such as the strength of the buyer or the length of the escrow, are critical to a seller.

In the past, it was recommended that buyers get “pre-qualified” by a lender.  This means that you spend a few minutes on the phone with a lender who asks you a few questions.  Based on the answers, the lender pronounces you “pre-qualified” and issues a letter that you can show to the seller.  Sellers are aware that such certificates are WORTHLESS, and here’s why!  None of the information has been verified!

In order to make the strongest offer today is to get “pre-approved”.  This happens after your credit, bank statements, and employment are checked and verified.  A “pre-approval” letter is very powerful!

Interest Rates

Another reason for including financing information in your offer is to protect yourself.  If interest rates suddenly become volatile and rise quickly, as sometimes happens, you may looking at a mortgage payment much higher than you anticipated.  By putting a maximum acceptable interest rate in the offer, you are protecting yourself from such an occurrence.

At the same time, the seller will probably want to see that you have some flexibility in the financing terms you are willing to accept.  If interest rates are currently at eight percent and you indicate this is the highest rate you will accept, you would be able to cancel the contract without penalty if interest rates rose past that point.  The seller would suffer because they have lost valuable marketing time and may have made their own plans based on successfully closing the transaction.

Closing Costs and Financing Incentives

There may be times when, as part of your offer, you request the seller to pay all or a portion of your closing costs, or provide some other financial incentive.  One common request is asking the seller to provide funds to temporarily buy down your interest rate for the first year or two.  Such incentives can be especially effective if a buyer is tight on money or pushing their qualifying ratios to the limit.

Whenever you ask for incentives such as these, you will probably find the seller less willing to negotiate on price.  After all, what you are really asking for is to have the seller to give you some money to help you buy their house.  The end result is that, for a little relief in the beginning, you are willing to pay a little more in the long run.

How FHA and VA Loans Affect Your Offer

If you are obtaining a VA or FHA loan in order to finance your purchase, you must include that information in your offer.  This is because government loans place additional financial and performance obligations on the seller.

First, VA and FHA loans prohibit buyers from paying certain types of fees that are often charged by lenders, escrow companies, settlement agents, and title companies.  They are called “non-allowable” fees.  They still get charged anyway, but as the buyer, you are “not allowed” to pay them.  The result is that the seller ends up paying them instead of you.

Since these are fees the seller would not pay on an offer with conventional financing, this information must be included in your offer.  You should also realize that since the seller will be paying these additional fees, they may be a little less negotiable on the price.

VA and FHA Appraisals

Home appraisal inspections on FHA and VA loans are a little more detailed than on conventional loans (and more expensive).  The appraisers are required to perform certain minimum inspections as well as evaluate the market value of the property.  Although these inspections are not as detailed as a professional home inspection and should not be considered a substitute, sometimes repairs are required.

These are additional costs the seller would not be obligated to pay for someone obtaining conventional financing, so your offer should include a maximum figure for these repairs.  Otherwise the seller is signing the equivalent of a blank check, and they do not want to do that.

At the same time, whatever figure you put in will most likely affect the seller’s willingness to negotiate on price.  If you put $500 as an estimate, the seller may be $500 less negotiable on their price.  If no repairs are required, you may have been able to get the house for $500 less than what you and the seller agreed on as the price.  The solution is to add a clause to your offer that goes something like this.  “If required repairs cost less than the maximum amount allowed, the excess will be credited toward buyer’s closing costs.”

Escrow and Settlement

For example, you are going to need an escrow or settlement company, usually the Title Company, to act as an “independent third party” between you and the seller.  Without having a third party involved, how do you know that when you fork over the money, you are going to get the deed?  This is the type of service provided by escrow and settlement.  They will hold your deposit and coordinate much of the activity that goes on during the escrow period.

Since this third party is very important to both you and the seller and both of you will pay fees to this company, it is important to agree on which service to use.  Therefore, your choice should be part of the offer.  Since you do not buy a home every other week or so, you are probably unfamiliar with companies that provide this service.  Your agent will make a recommendation. You have the authority to accept this recommendation and include it in your offer, or make your own choice.

Title Insurance

Title insurance is important because, by providing you with an Owners Policy, they insure that you have clear title to the property.  If there are any problems later, you can always go back to the title insurance company and have them clear it up.  Since it is customary for the seller to pay for the owner’s policy, they have an interest in which company is used.

However, you are going to pay a fee to the title insurance company, too.  This is for the Lender’s Policy.  The lender’s policy insures your mortgage lender that there are no liens or judgments against the property and that the mortgage will be in first position.  In other words, should you sell the property or refinance it, their mortgage gets paid first, before any other claims against the property.

The lender’s policy is less expensive than the owner’s policy.

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Unfortunately, the Oldach wood windows couldn’t stand up to the drastic elements and wide range of weather we see here in theFront Range. Most of the Oldach wood windows we see these days have failed. Here are a couple of examples of what we see on a daily basis…

 

Drying Wood:

The fundamental problem with these particular windows is the type of wood they are made from. This particular wood tends to dry out in the intenseColoradosun. The photograph below shows the exterior of an un-maintained Oldach wood window.

 

 

 

Drying wood on an exterior window frame


Broken Thermoseals:

These are a dual paned window with a hermetic thermo seal between the two panes of glass. The primary problem we see with these windows is failure of the thermo seals. This failure leads to condensation and fogging between the window panes.

 

 

 

 

 

Fogged Oldach Wood Window

 


Failing Stop Gap Trim:

Failure in these windows usually starts on the exterior of the window. There is a small piece of trim on the window called the “stop gap” trim. As you can see in the following photo, the trim piece dries and shrinks, exposing the sealant behind the glass.

 

 

Failed Stop Gap Trim

 


Delaminating Stucco:

Stucco is a popular exterior cladding for homes here in the Pike’s Peak Region. Our climate is extreme and we can see wide temperature ranges in the same day. The intense sunlight also tends to bake wood and composite products like Masonite.

Stucco at the most basic level is cement. It is generally applied over an appropriate substrate, usually some kind of wire mesh. Stucco, if applied correctly should be maintenance free for longer then most people tend to stay in a home.

In our area we generally see stucco problems arise from improper application. Historic homes in the downtown part of Colorado Springs were generally wood frame with wood lap siding. In an effort to alleviate the ongoing maintenance wood homes require, many homeowners turned to Stucco as an easy alternative to their maintenance woes. Unfortunately many of these applications didn’t include the appropriate substrate.

Over time, many of these installations have begun to fail. The most common form of failure in delamination, this is a condition where the stucco begins to pull away from the substrate allowing moisture and decay to begin work on the house.

Here are some pictures of a classic downtown stucco delamination.


Delaminating Stucco
This stucco has been applied directly to wood lap
siding. The air space between the stucco and the siding is
allowing decomposition to occur in the underlying wood siding.

Stucco Substrate
This shot gives a great view of the underlaying substrate.
Notice, no vapor barrier or wire mesh.


 

Forced Air Furnaces

The majority of the inspection issues we see here in the Pikes Peakregion tend to be related primarily to deferred maintenance. The biggest culprit tends to be the furnace, especially forced air natural gas furnaces. Based on the design of these units, they actually serve a dual purpose, first heating the air while at the same time filtering some amount of dust and particulates. The dust and particulates are actually what causes the trouble.

Regularly changing filters is a great way to start and certainly helps but forced air natural gas furnaces need regular maintenance, preferably by a licensed professional, ideally two times a year (before and after heating season). Dirty furnaces are responsible for a host of heating problems. Here is a list of possible problems created by a dirty or poorly functioning furnace

  • Furnace doesn’t produce enough heat
  • Higher Natural Gas or Propane Bills
  • Furnace cycles On and Off too frequently
  • Potential damage to unit
  • A poorly functioning furnace can cause carbon monoxide poisoning
  • In some EXTREME cases, the unit can cause a fire
  • When a furnace is running with a dirty and clogged filter, the air flow across the heat exchanger is restricted, eventually overheating and cracking the heat exchanger.

Furnace maintenance is the single most overlooked item on a property inspection. Additionally, this is usually a red flag that there are more then likely other issues.

If you do nothing else before putting your home on the market, have your furnace professionally cleaned.

This is an example of a dirty furnace, notice the lint and dust on the fan motor.