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The value of an Inspection before Listing your Home
Pre-Listing Inspections
Imagine what happens when there is not a pre-listing inspection. The buyer contracts for the home with a provision for professional home inspection. When it is made, there could be things that the buyer didn’t expect or even, anticipate. If it doesn’t trigger an action to terminate the contract, the buyer will inevitably, ask the seller to make all the repairs.
When presented with the buyer’s request, the seller may take the opposite position of not wanting to do any of the repairs. The buyer could accept the property in its “as is” condition or negotiate the repairs or a reduced price with the seller.
Any experienced agent can tell you that sometimes a mutually agreed negotiation is reached and other times, an impasse is met that cannot be resolved. The contract is terminated, and the house has to go back on the market but this time, a disclosure has to be made to all parties looking at the home which may deter showings.
Taking a pro-active approach, by obtaining a pre-listing inspection, the seller can find out about things that will probably show up in a buyer’s inspection. They can get them repaired before the home is shown and it will help the buyer feel more confident with the home. Another option would be to disclose them as not working and make a price adjustment, either way, the seller is in control and is taking a position of transparency with potential buyers.
In some cases, the pre-listing inspection may show things in working order that the buyer’s inspection indicates as needing repair. With two disinterested parties having opposing opinions, negotiations have a more likely chance for a mutual agreement.
Disclosing things that are not in working order can reduce liability in the future. Some deficiencies with the home are not discovered prior to the closing and the surprise issues could lead to liability. The pre-listing inspection by a professional combined with the seller disclosing it properly can reduce potential liability.
For the small investment in the pre-listing inspection, the benefits are well worth the expense. For example, it can provide opportunities to take care of potential issues on your own time with control over who does the work at a certain cost. For a qualified do-it-yourself type homeowner, some items may lend to offering you to perform the work before a buyer puts the house in contract. This can save a lot of money and time without needing the work of a contractor, although it can be risky to take on the liability if repairs are not performed correctly and to code.
You and potential buyers will also have a better idea of the condition of your property and know what to expect. You can present the property in a transparent way that will build confidence with the buyer. You’ll avoid unpleasant surprises as well as possible delays or terminations. Starting over as a seller can be a very challenging hurdle to overcome depending on the market conditions. Pre-listing inspections can lead to faster sales and satisfaction for everyone involved.
For more information, download the Sellers Guide.
Debt to Income Ratios
Debt-to-Income Ratio Affects Approval & the Interest Rate
Debt-to-Income ratio is a tool that lenders use to qualify buyers for a mortgage and is an important factor in determining loan approval. It provides an indication of the amount of debt that a potential borrower is obligated to in relation to how much income they have.
Total monthly debts are determined by adding the normal and recurring monthly debt payments such as monthly housing costs, car payments, minimum credit card payments, personal loan payments, student loans, child support, alimony, and other things.
By dividing the monthly income into the monthly debt, you arrive at a percentage of the monthly income. Lenders actually look at two different ratios commonly called the front-end and the back-end.
The front-end ratio is the proposed total house payment including principal, interest, taxes, insurance, mortgage insurance if required, and homeowner association fees. Lenders generally don’t want these expenses to be more than 28% of the monthly gross income.
The back-end ratio includes the same items that are in the front-end ratio plus any other monthly obligations like the ones mentioned earlier. Lenders prefer to see this ratio not to exceed 36% of monthly gross income but some lenders may extend that to 43%. Borrowers obtaining an FHA mortgage might also be allowed an even higher back-end ratio.
If a borrower had $8,000 monthly gross income, their proposed house payment should not exceed $2,240 or 28% of their monthly gross income. Then, their house payment and monthly debt should ideally not exceed $2,880 or 36% of their monthly gross income.
For the sake of an example, let’s say that their monthly debt was $900. That would only leave $1,980 for the maximum house payment. The monthly debt became a limiting factor affecting the house payment.
In addition to determining whether the buyer qualifies for the mortgage, it could affect the interest rate. Having good credit and having the proper ratios can result in being approved for a mortgage. On the other hand, if the debt is on the upper side of an acceptable range, the lender may charge a higher interest rate for the addition risk of a marginal borrower.
While the math is not difficult to come up with your ratios, it is not necessarily a do-it-yourself project. A trusted lending professional can assess your situation and give you an accurate picture of what price home you can afford and the rate you can expect to pay.
Both things are important to know before you start looking at homes and especially before you contract for one. All lenders are not the same. Call me to get a recommendation of a trusted mortgage professional who specializes in the type of mortgage you want. Download this FREE Buyers Guide.