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Ask Realty Times - January 9, 2004
by Peter G. Miller
Question: I'm selling my home in a great area. We had many offers and the one we took was $20,000 over the asking price. The buyers are putting in a lot of cash and are only financing $100,000 of the $600,000 sale price. We're afraid that our house will not be worth that much, but does the lender care? Answer: Lenders care very much about value and risk. They will make a loan based on the sale price or the appraised value, whichever is less. If a buyer wants to pay more, that's okay -- as long as the additional price is not paid with lender funds. You have a home selling for $600,000 and a borrower who is putting up $500,000 in cash. The lender is providing $100,000. The lender wants to be certain that in the event of foreclosure the property has sufficient value to re-pay the loan. In this case, even if the property sold at a 75 percent discount from the sale price, there would still be enough value to re-pay the lender. From the lender's perspective, this is a loan situation with virtually no risk because there is so much equity in the property -- that $500k put up by the purchaser. Question: We bought a home in November. The previous owners put a new roof over the garage and then had a deck installed. The deck is causing the roof to leak. The roof has a five-year warranty. The roofer said he told the owners a deck over the roof was a bad idea and could cause problems, but this was not disclosed to us. We have contacted a lawyer who said to get a bid on fixing the situation, which we are doing. The seller's broker said the previous owner has moved out of town and she does not have an address. Do we have any rights in this matter or are we going to eat the deck, the roof, and the few other problems we've encountered with this house? Answer: Among other matters, your attorney will surely want to review any seller disclosure statement that was provided to you. The seller's new address may be available from the settlement provider or the Postal Service -- check with your postmaster for a forwarding address. What license is needed in your community to be a roofer? Does the construction of a deck above a roof require a building permit? If yes, was a permit issued? Did the local government inspect and pass the work? Homesellers are not eternally responsible for the condition of a house -- and no house is perfect. The day after a house is sold something can go wrong and the sellers will have no responsibility. Think of a water heater that fails. That said, here are two general ideas concerning condition: First, material defects of which the sellers are aware should be disclosed. Second, buyers should not rely on sellers. The most honest seller in the world may not know about a problem. As a buyer you want to protect yourself and make your purchase subject to a home inspection satisfactory to you; an inspection performed by a qualified, independent expert you hire. Question: I currently have a 10.75 interest rate on my mortgage. I was contemplating refinancing to get a lower interest rate and cash out. Then, I read that a home equity line-of-credit was the best way to go. I also read that a home equity line-of-credit loan is a good way to lose your home if you aren't careful. Thanks a billion!! Answer: A home equity loan can be abused -- but this is not the immediate issue here. You have financing at 10.75 percent in a marketplace where loans are routinely available at six percent. You're paying a premium of 4.75 percent -- on a $100,000 loan that's an extra $4,750 a year or $396 a month. Do you have credit problems which prevent a better rate? If not, today, this moment, check rates online and speak with local lenders. Let lenders compete for your business. Look for a lower rate and sensible terms, say 30 years with a fixed rate and a right to repay at anytime in whole or in part without penalty. As to home equity lines-of-credit, there are millions of such loans and, yes, in extreme cases they can be abused. For instance, someone gets such financing, pays off credit card debt, then merrily spends and ramps-up credit card balances again. The problem resolved by refinancing is now worse because there is additional debt and less unencumbered equity. But, credit abuse is not a given. It's possible both to refinance and to use credit responsibly -- as most people do. Question: I'm a 27-year-old mother of two, I want to buy a house but my credit score is not that great. I'm single, I've worked at my current job for three years. I want to own my own home but it's hard to get any help for single mothers. It's getting to the point that I want give up. I'm tired of trying, it's too painful. What can I do? Answer: Let's sort what is, and is not, an issue. Lenders do not care about your age. Discrimination on the basis of familial status and gender are illegal. Lenders want to make loans -- no loans, no fees, no interest. Go back to your credit score. If it is "not that great" what can you do to make it better? Is it average or below average? Surely having a steady job is a big plus. Try this: Start making appointments with lenders. Have a lender review your credit report -- you can generally get such a report for less than $10 and even without cost in some states. Is there anything on your credit report which is factually incorrect or out-of-date? Are there loan programs for which you might qualify? What about state-backed programs? Lastly, make a point of paying all bills early and in full -- your credit score will be helped. Question: I placed a $500 deposit on a lot. After my credit was approved the broker called and said the property had been sold to someone else. There was no other paperwork. Can they do this? Answer: You can just picture the questions that would arise in a contract law class: Is delivery of the check enough to create an agreement? Was the check cashed? If it was cashed, did the check contain all the elements needed to have a contract? Was the lot fully described on the check? If the check was not cashed, what do you have? If the check was cashed has the money been returned? You can surely have an attorney or legal clinic review this matter. But if your money has been returned, then you need to ask what you want to accomplish, what it will cost and how long it will take. It may be best to simply look at a different lot. If you like another property, get help from a broker so you can be certain that a deal is a deal and the paperwork is correct.
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