Q. I have a home inspection coming up for my first house. I know I should be there but I’m just wondering if it is really that necessary because I’m very busy with work. The house is in great shape and my real estate agent is planning to work with the inspector on the request for repairs, so why else would I need to go? Jennifer M., Loma Linda, CA
A. Many people do not go to their home inspection, and quite frankly this is a very bad idea. The home inspection is probably only the second or third time you will be inside the property, and probably the last chance you to have take an objective look at the house to make sure you really want to purchase it.
In addition, the home inspector is only going to report if things are working or not. He or she is not going to assess how much a buyer like yourself might consider spending to buy new appliances, paint the house, landscaping, and all the other items that you would want in a house. You need to be there to add those up, because it might be a lot of money.
If you are there to estimate all the costs, and they add up to too much, you can always cancel the contract and look for a more appropriate house to buy. If you are not there to do this, you’ll find out after you close escrow and then it’s too late!
FHA Mortgage Insurance Premiums
Q. I was just qualified for a 95 percent loan on a property and couldn’t believe how much FHA Mortgage Insurance Premiums have increased since a few years ago. Why are they so high and is there any way to reduce these costs? Alan H., Savannah, GA
A. There is a simple reason why FHA mortgage insurance premiums (MIP) have increased. It’s because the FHA was not charging enough in the past. And due to not charging enough, they may need a federal government bailout in the next few years, which could cost taxpayers tens of billions of dollars.
By significantly raising the MIP rates, the FHA will generate more revenue and hopefully those revenues will be able to cover all the future losses on mortgage borrowers who go into default – unlike what has happened in the past. This unfortunately does cause borrowers like yourself to pay more, and prices more first-time buyers out of the market. But the type of lending the FHA does – low down payments to lower credit score borrowers – is risky and the premiums should reflect the risk that is being taken, so it isn’t ultimately borne by the taxpayers.
There isn’t much to do about this except try to get a loan without FHA backing, which probably means putting down more money or holding off on purchasing a home until your income can qualify you for a non-FHA guaranteed loan. Good luck!
EDITOR'S NOTE: This story was written by Leonard Baron, MBA, who is America’s Real Estate Professor® His unbiased, neutral and inexpensive “Real Estate Ownership, Investment and Due Diligence 101” textbook teaches real estate owners how to make smart and safe purchase decisions. He is a San Diego State University Lecturer, blogs at Zillow.com, and loves kicking the tires of a good piece of dirt! Email Your Questions to: Leonard@ProfessorBaron.com