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How Home Inspections Can Finance Your Mortgage

Congratulations! You’ve fallen in love with a house and made an offer on it, and it’s been accepted! An important next step is hiring a reputable inspector to perform a thorough home inspection of all major systems. There are very rare cases when you might skip a home inspection, but for the average buyer, the inspection is of utmost importance. Home inspections not only identify issues with the home you’re buying and get them repaired, but they also can help you finance your mortgage.

What Home Inspectors Look For
When you hire an independent inspector to look over the house you’re buying, they’ll examine the house’s structure, electrical systems, plumbing systems, roof, heating and cooling, and overall home condition.

You can choose to attend the home inspection, but note it can take a few hours to complete. When the inspection is finished, you’ll receive a copy of the report that details any issues or maintenance needs in the home. You can then use that report to negotiate repairs on the home or a credit on the purchase price. You’ll talk to your real estate agent about the repairs you’d like to see done on the home, and they will convey those requests to the seller’s agent.

What Repairs Can I Negotiate?
Your home inspection report can include major repair needs, deferred maintenance, and minor fixes. As the buyer, you can decide what repairs need to be made for you to move forward with buying the house.

If the inspection is unsatisfactory, you can back out of the home purchase, but know you will not get a refund for the inspection, and in some cases, you might lose the earnest money you put down on the house when your offer was accepted. The seller also can decline to perform any repair you ask for. Use the inspection as a tool to ensure you’re comfortable with purchasing the home in its current condition.

When you negotiate a repair to the home, the seller must complete it at least ten days before closing and provide proof of work completion, such as receipts. When you complete your walkthrough of the home upon closing, you and your real estate agent will determine whether the repairs were done to a professional standard. If they were not, the seller may have to fix the new issues.

What Repairs Can I Negotiate?
Generally, you can request any repairs you want based on the inspection report, but you cannot ask the seller to upgrade finishes or make other changes based on personal taste or preference.

For example:

  • You could ask the seller to repair damage to cabinet doors, but you cannot ask the seller to upgrade the countertops to granite.
  • You could ask the seller to repair damage to the existing exterior vinyl siding, but you cannot ask the seller to re-side the house in a color you prefer.
  • You can ask the seller to replace a foggy pane of glass in a door, but you cannot ask the seller to remove an existing standard door and install a French door.

What Is a Credit?
If the seller does not wish to make a repair, or it is inconvenient to do so prior to closing, but they concede to do it, the seller can meet the buyer’s demands by offering a monetary credit to the buyer.

A repair credit is usually paid in the form of a certified check directly from the seller to the buyer upon closing. However, sometimes the credit can come in the form of a lowered purchase price on the home. State law and lender policies determine which is the best way to proceed with a credit.

How Does the Inspection Help Me with My Mortgage?
Repairs you ask the seller to make to the home can save you money on a home purchase because you do not have to finance these fixes separately. You do not have to pay out-of-pocket for these repairs, nor does the negotiated price of the home increase because of them.

If a seller offers you a credit because they cannot complete the repair or do not want to pay out-of-pocket for the full cost of the repair, you will either receive a certified check from them, or they will reduce the purchase price of the home.

If they write you a check, you can use it to finance the repair. With this check, you do not have to use your own savings on the repair.

A seller might instead reduce the purchase price of the home to accommodate for the cost of the repair the buyer will have to pay to conduct. However, many lenders consider this concession a risk to the sale and do not allow the credit as a line-item in the final settlement statement. Check with your mortgage lender about the best way to proceed in this instance.

Sometimes you can negotiate repairs that ultimately help to increase the value of the home you’re buying, and those repairs are typically done prior to the appraisal being completed. The appraiser takes into account the home’s condition when determining value, so a home that appears to need fewer repairs may be worth more money. This means you may already have a small amount of equity in your home immediately upon closing. If you’re paying Private Mortgage Insurance (PMI) because you did not make a 20 percent down payment, this equity is a step toward dropping the PMI more quickly.

Finance Your Home Loan with Homestead Financial
Although credits and repairs can save you money and even partially finance your home loan, you still need a mortgage lender to get you the loan in the first place! If you’re ready to start the home-buying process, it’s time to get pre-approved.

If you’re looking for a St. Louis or Kansas City home loan, the experts at Homestead Financial can get you started. Contact us today to learn more about the type of home loan you qualify for.

To learn more, please reach out!