This Week’s Highlights:
- What does inflation mean for home buyers?
- How do mold hazards affect home loans?
- A curveball just before closing
What does inflation mean for home buyers?
Once again, economic news came in last week that suggested we could soon see a substantial hike in interest rates. Instead, it seems that rates have stayed the same, if not decreased slightly. According to last week’s Jobs Report, consumer prices jumped 5% year over year. When we actually look at the data for May 2021 versus May 2020, we found that the percentage was closer to 4.2%. More importantly, America was in the midst of a lockdown during May of 2020, and prices were actually depressed. Furthermore, when comparing to May of 2019, current prices are still 5% higher, suggesting that there was no real price inflation in the past two years.
That said, when comparing May 2021 to February 2020 (or just before the pandemic), we see that prices have increased 4% in that time. This means that prices are slightly increasing, but not as drastically as some reports might suggest.
Why is this information important to home buyers? If the price of goods is rising faster than the cost of the borrowed money, anyone who’s buying a mortgage is losing. In other words, if the cost of goods is rising by 5%, but the pension fund that owns a homeowner’s mortgage is only getting 3%, the pension fund is losing money to inflation, making the investment of mortgages less attractive, and which would eventually drive rates on mortgages higher.
How do mold hazards affect home loans?
We recently got a call from a listing agent regarding an issue that was caught by an appraiser. After a fairly quick deal, this home had a 30 day close with a 21 day financing contingency. The appraisal, however, detailed a black substance on the basement wall. The appraiser showed us four pictures of this mysterious black substance on the wall that looked like it had the possibility of being mold. This issue got flagged in the underwriting as an issue that needed to be dealt with immediately for the sale to continue.
When going through a lender, issues like this can stop a sale dead in its tracks. Real estate agents can often assume that issues like this only matter on FHA and VA loans. In reality, safety and health issues like mold, lead paint risks or uneven concrete matter to any lender. At the end of the day, lenders need to know that the property is not hazardous to the occupants. Furthermore, if the lender gets the property back in foreclosure, then it becomes an issue that they have to deal with. This makes it difficult to know what the cost of remediation would be in order to put the home back on the market.
In this particular instance, the buyer was a knowledgeable contractor, so he wasn’t concerned about the basement wall. If he had been paying cash (essentially making him his own lender), he could have chosen to ignore the issue and fix it himself at a later date. Because he went through a lender, though, it puts the sale on hold. The situation would be the same at any other banker or lender.
Accunet Mortgage and Realty worked with the agent and explained that the seller could take care of the mold themselves, but would still need to get an expert in to officially declare that there was no ongoing mold issue before the sale could commence. Luckily, Accunet has worked with reliable experts in this area before. These experts came in and found evidence of a bigger mold issue. To clear up the problem, they would have to do a mold abatement. They were able to complete the work on a Friday, and were able to provide the paperwork that declared the issue rectified on Tuesday during the closing. The biggest and most important takeaway here is that property conditions matter, especially when borrowing through a bank or lender.
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A curveball just before closing
A member of our Accunet team got a big surprise this past Tuesday, just a couple of hours before closing on a new home. At the 11th hour, the seller disclosed that they had some outstanding electrical permits that I hadn’t wrapped up yet. Although the sale was to be completed in the next two hours, the seller had to delay the closing because of the outstanding permits.
Luckily, the buyer’s agent had written an amendment to extend the closing because they wanted to remain under contract, allowing them to still make the sale. This gave the seller an extra week to complete the work and to have it approved by the city. The agent also included a second amendment (which is currently being negotiated). Due to the late hour extension, this amendment explained that the buyer was inconvenienced. While the headaches weren’t due to the buyer’s rate lock or their interest rate, they were supposed to have a mattress and furniture delivered on the Wednesday after the closing. Because of this, the buyer was expecting some reparations. This was the smart direction to take, because the extension didn’t tie into any credit, which could have further complicated the sale. Instead, they took the delay in stride and are now attempting to turn it into a positive with some additional reparations.
How can current homeowners help to ensure these situations don’t complicate their sale? The best advice we can give is this: if you’re going to sell your house and you’ve been in there for longer than five years, consider getting a home inspection done yourself. It’s a great way to get ahead of any issues or surprises that might come up during inspections once the home is on the market.
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