First American Title December 2008 Newsletter
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Current credit and market conditions can affect home purchase transaction time Changes in the housing market can change the nature of home-sale transactions. For instance, before the boom in the home-sale market that began in the second half of the 1990s, the California Association of Realtors (CAR) purchase agreement used by most California Realtors included a clause in which the seller warranted the condition of the property. The boom market changed that. The version of the CAR purchase contract most widely used during the fast-paced market that subsided in 2006 did not include a seller warranty. Instead, the buyer agreed to purchase the property in its present condition subject to the buyer's inspection rights. Market conditions changed the home-sale transaction in a very significant way. Similar changes are taking place in the current market. The most obvious change is that it's harder to get financing. Not only is there a lack of liquidity, there are fewer lenders in the mortgage business and the qualification requirements have tightened considerably. Lenders now fully qualify buyers for mortgages, which takes more time than it took to grant a stated-income mortgage, a popular type of home loan during the boom years. With a stated-income mortgage, the borrowers didn't have to verify the income that they stated on their mortgage application. Now, most lenders require complete verification of employment, income, assets and credit history. Full qualification and underwriting approval can take up to three weeks or more, depending on the lender, the mortgage amount and your financial situation. Many lenders now require two appraisals rather than one, particularly on loan amounts over $1 million. With some lenders it can take as long as seven to nine days after the first appraisal is sent to underwriting for the second appraisal to be done. This means that your loan contingency could expire before you have complete approval. Some lenders work faster than others. Find out before you make an offer how long the entire loan approval process will take. Tailor your loan contingency time period accordingly. Otherwise, you might have to ask the seller for an extension. It's always best to meet the contingency deadlines stated in the contract. You may want to ask the seller for a concession at some point, perhaps to cover the cost of a defect discovered during inspections. A seller who's happy with your performance is more likely to be cooperative than one who is mad or anxious because you have not met your deadlines. With mortgage approval taking longer, short closings are virtually impossible unless you're paying all cash. In most cases, it's difficult to close a home-purchase transaction in less than 30 to 40 days from contract acceptance. During the boom market when financing was easy to obtain, many buyers closed within a couple of weeks. Check with your lender to find out a realistic time frame for closing before making an offer. There is far more negotiating now than there was a couple of years ago. More buyers are asking for sellers to pay to correct inspection-related defects. Some buyers require that the work actually be done before closing. This can pose a problem. It's often hard to line up contractors at the last minute to do work within a short time frame. For this reason, it's a good idea for sellers to have pre-sale inspections done before they put their homes on the market. If there are defects discovered that will be red flags to a buyer, consider having the work done before your home goes on the market. Not only will this minimize your chance of a delayed or failed transaction, your home will be more salable. Remodeling your home: Understanding inspections If you're thinking of doing some improvements on your home, especially extensive ones, chances are you'll need a building permit. So you head down to your local building department, fill out an application and provide whatever information they require, and a short time later you have your permit. Once you have your permit, it's important to understand how the inspection process works, and what you need to do to be ready for it. Knowing when different inspections are required and what the inspectors are going to be looking for will help everything go much more smoothly. When you receive your permits, you will also be given information about how to call for the inspections. Some cities utilize an automated call-in system, some do it online, some have live technicians that take the requests, and some offer all three. However it's done, be aware that most jurisdictions require that you request an inspection with at least one day's notice, sometimes more. DIFFERENT PROJECTS, DIFFERENT INSPECTIONS Here are some of the more common inspections, as well as when they occur and what the inspector will be looking for. Footing Inspection: This is typically the first of the inspections, and occurs after the grading has been done and the forms have been laid for the foundation, or at least for the footings. The inspector is looking to see that the footings are the proper size and depth, that any reinforcing steel is in place, and that the location of the foundation does not violate any setbacks. Underfloor Inspection: This occurs after the foundation has been poured and the floor framing is in place, but before the subfloor is installed. This gives the inspector the opportunity to look at the floor framing, as well as any plumbing or mechanical systems that might be in place under the floor. The inspector will be looking at the size and spacing of the framing; that proper materials have been used wherever the wood meets either the concrete or the soil; and that plumbing and mechanical systems are properly sized, installed and supported. Rough Inspections: These inspections occur after the rough framing has been completed and all the rough wiring, plumbing and mechanical components have been installed, but before any finished wall and ceiling covering is installed. These are typically the most extensive and complicated of all the inspections, since there is a lot to review and it will all be covered and inaccessible in the future. The rough framing inspection includes an inspection of all the structural components. The inspectors will be checking that the proper size and type of lumber was used, and that the spacing is correct; that hangers and steel connections are the correct type and are installed with the proper type and quantity of fasteners; that flashings and other weatherproofing measures are in place; and that the roof, windows, exterior doors and other components are in place to make the building weather-tight. Rough electrical inspections include checking the size and installation of all the wires; the service panel; grounding; installation and location of boxes; installation of can lights; and whether the wires are properly routed and protected. Rough plumbing inspections look at the size and type of pipe that was used; proper slope for drain pipes; vent pipe sizes and locations; size and location of water lines; and that everything is secure and well supported. Rough mechanical inspections include the size, location, and installation of all ducts and vents; installation of furnaces and ventilation fans; and the proper ducting of fans to the outside of the building. Insulation Inspection: This inspection occurs after the wall insulation has been installed and checks to see that it is complete and of the proper R-value. Drywall Inspection: Some cities include a drywall inspection, which occurs after the drywall has been installed but before it is taped. The inspectors are checking to see that the proper number and type of fasteners have been used to secure the drywall to walls and ceilings. Final Inspections: When everything is done, the inspectors will make their final inspections of all systems to ensure that everything has been completed correctly. They will test different systems, check for compliance with manufacturer's specifications, and ensure that everything is operating properly and the house is safe for occupancy. Remember that this is just a brief overview of the inspection process, and that the actual number, timing and details of the inspections can vary widely. Be sure to talk with your building department to get the specific details of the inspections for your particular project, and to get any of your questions answered before you begin. |
