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Do seller-paid inspections make sense?

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Posted On: 06/04/2008

Q: Does it make sense for a seller – not a buyer – to get a professional home inspection, something that can be used as a sales tool to market the home?

A: An inspection by a professional, independent home inspector can help establish the condition of the property, which surely is important to buyers. Be aware that an inspection may well reveal material problems with a home – items that either should be fixed, disclosed or both. Not disclosing such items could create significant liabilities.

As a purchaser, however, I would welcome a professional home inspection from a seller, but I also would want an examination by my own inspector, someone I employ and who works for me. Yes, this will cost money, but a home is a huge investment and the expense of a home inspection seems well within reason.

One new idea is to combine a pre-sale professional home inspection paid for by a seller with a limited warranty. The purpose of such a plan is to give buyers a sense of the property’s condition, as well as some protection if there’s a mechanical, systemic or structural failure of some sort.

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This is an interesting idea – at least in theory. In practice, buyers need to consider the specifics of such programs. For instance, what are the warranty limitations? How long does coverage last? What is covered for repairs and what’s not? What are the exceptions to coverage? Are there any deductibles per repair? What is the maximum coverage dollar amount of per repair and for the life of the policy? Is binding arbitration required if there’s a dispute? If so, what are the arbitration terms?

As a general rule, professional home inspections paid for by purchasers make more sense than the seller disclosure forms required in virtually all states. Why? Because sellers in good faith may not have the mechanical or construction skills needed to complete such forms and some of the questions are vague or useless.

Q: I am a 77-year-old widow, and my house is paid off. Do you know of anyway that I could save my house if I ever have to go into a nursing home? Also, if I add my daughter and son’s name to my deed, will it affect my local property tax?

A: Under Medicaid, states have a right to “look back” as much as five years for major financial gifts. Gifts made during this period may impact Medicaid eligibility.

Changing property ownership could set off a series of transfer taxes and raise other concerns. Large gifts could raise issues concerning gift and estate taxes. Please go no further with any plans until you have spoken with an elder law attorney. Be sure to ask about a will and living will, and a reverse mortgage, among other matters.

Q: Four of us (my wife and I and, my wife’s sister and her husband) took out an interest-only mortgage with no down payment in January 2007. The loan has been sold several times. Now, 14 months into our mortgage, our latest lender has added private mortgage insurance to our monthly payment. Can they do that? Just add something on to our payments when originally we had paid a higher interest rate to avoid mortgage insurance.

We have never missed a payment. Our four credit scores are above 725, that’s why we were never required to have mortgage insurance when we closed.

A: To get a “conventional” mortgage you need to buy with 20 percent down. Since most people do not have 20 percent of a home price in cash, the alternative is to get a loan with some form of third-party backing such as insurance from the FHA, VA or a private company.

In some cases lenders do not require private mortgage insurance, instead they self-insure by charging a higher rate. For these reasons the need for mortgage insurance is based mainly on the amount you put down and whether your loan is fixed or adjustable, not your credit score.

Your loan can be sold and resold, but a new lender cannot change the loan terms. Most likely, your payment increased because you have an adjustable-rate mortgage or because property taxes or insurance fees rose.

Send a letter by certified mail, with a return receipt requested, to the lender asking for a review of the loan. Include your loan number and explain the issue.

Meanwhile, keep paying your mortgage in full and on time. This is critically important, otherwise the lender can view your loan as delinquent. For details, contact an attorney or legal clinic.

Peter G. Miller is the author of The Common-Sense Mortgage and a veteran real estate columnist. Have a question? Please write to peter@ctwfeatures.com.

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