Lower down payment, lower interest rates — it sounds like a win-win for the consumer. But FHA has some disadvantages, too, particularly the higher price of its mortgage insurance premiums, which can cost up to 1 percent of the loan annually. Borrowers should closely work out the details with their lenders to determine whether an FHA loan really is the best deal for them.
At the end of last year, the Greater Capital Area Association of Realtors and the Northern Virginia Association of Realtors revised the standard sales contract used across the region. Many of the changes, which went into effect Jan. 1, simplify the document’s structure and language, but one key component has the potential to hit home buyers in the pocketbook.
In the past, the seller was required to provide a warranty that the house’s appliances, plumbing, electrical systems, and heating and air conditioning were all in good working condition. If those elements turned out to be defective, the seller could be held liable. According to the new contract, however, the entire home is to be sold in “as-is” condition, with no guarantee about the state of anything in the home. If a pre-sale inspection fails to catch an on-its-last-legs boiler, for example, that’s simply the home buyer’s bad luck.
The real estate professionals who made the change say that they were aiming to clarify obligations, but others in the business say it’s an anti-consumer move. “The burden completely shifts to the buyer,” explained Steve Israel, president of Buyer’s Edge Company in Bethesda. “The buyer will have to spend tons of money and assume tons of risk on every transaction to understand even if the house is worth buying.”
The shift isn’t necessarily a big deal in Virginia, where full written disclosure by the seller has never been common. The District, by contrast, prides itself on a mandatory disclosure form forcing the seller to list the condition of the home and its systems — and that will serve in lieu of the former contract’s language. But it’s Maryland home buyers who will be most affected: A property disclosure form is required in Maryland, but sellers can opt to disclaim any representations about property conditions on the form.
Those who are about to settle on a home do have a few options. One is to hire a buyer’s agent who will carefully examine the property’s conditions. Even better, a buyer could insert an inspection contingency clause that provides them with the right to conduct a home inspection, and then give the seller a list of those items that need repairing or replacing. The seller must then make changes or reduce the price.