Buying a Home? Don’t Forget About the Inspection

While home buyers typically think of home inspections as being required solely for the purchase of homes that are in a state of needing repair, the truth is that they benefit all types of buyers.

Why do you need a home inspection?

The answer is simple.

If there is a problem with the property that the seller either is attempting to hide or is truly unaware of, you need to know about it before you purchase the home.

Most real estate contracts provide a window, often five days, within which a potential buyer is able to obtain a home inspection.

If issues arise, the buyer has the opportunity to bring them to the attention of the seller.

The seller is under no obligation to address them, but at the same time you are able to walk away from the property if you choose.

An inspection isn’t required by a lender, so the request has to come from the buyer.

Though an inspection can be pricey, it’s a bargain if an issue arises that could wind up costing thousands of dollars.

Inspections cover all major areas of a home, from electrical and plumbing to structural.

A good inspection can and should take several hours to complete.

When looking for an inspector, it’s wise to seek a recommendation from a real estate agent or a home inspector association.

Try to find an inspector with some type of license and/or certification and who specializes in areas such as radon or mold.

How Lenders Look at Debt and Income

Home buyers and homeowners often have questions about debt and income ratios when they enter into a home finance transaction.

Following are answers to some common questions:

How Is My Income Calculated?

When looking at your income, lenders start with your gross, or before tax, income, regardless of what tax bracket you might be in or what other deductions might come out of your pay before you see your net amount.

If you are on Social Security, for example, where there are no taxes, you would do something called “grossing up.”

You take whatever you receive and multiply it by 1.25 to arrive at what you would be able to use as income on a mortgage application.

How Is My Debt Calculated?

There are two ratios that lenders look at.

They are the front-end ratio and the back-end ratio.

Front-end Ratio

The front-end ratio is purely housing expense. This is your mortgage, plus taxes, plus property insurance, plus mortgage insurance, if you have that.

Back-end Ratio

The back-end ratio includes everything in the front-end ratio plus all of your installment and revolving debt.

Items here include car payments, credit card payments and any other type of debt for which you are obligated to make some type of payment monthly.

How Are Home Equity Loans Calculated?

Home equity loan payments are calculated as if the balance were as high as it could go.

Items that aren’t included on most mortgages, with the exception of Veterans Administration loans, are items such as food, gas and cable TV bills.