ask george & chuck
Jan. 3, 2005

Inspecting FHA homes, explaining earnest money, locking interest rates ...
Answers to real estate questions as appearing
in the Houston Chronicle

Dear George: How would I obtain information about opening up an apartment-locator service in our area?
? Considering Locating

Dear Considering Locating: The requirements are the same as the requirements to open a business to sell or lease real estate. The firm must have a real estate broker serving as the broker of record and real estate salespersons administrated by the broker, if others are going to be associated as real estate licensees with the firm. The Texas Real Estate License Act defines a rental locator in Sec. 1101.002: "(6) ?Residential rental locator? means a person who offers for consideration to locate a unit in an apartment complex for lease to a prospective tenant. The term does not include an owner who offers to locate a unit in the owner's complex."

Dear George: I am having an FHA home built, and it will come with standard warranties covering the roof, etc. As far as the construction goes, only the slab has been laid. The FHA is charging an additional $1,100 for the paperwork and inspections they have to do. Should I pay for my own inspection as well?
? Concerned About Inspections

Dear Concerned About Inspections: I definitely recommend that you hire and pay for your own inspection. Inform the inspection service what you are doing and get inspection quotes on the house during construction as well as in a finished state. My opinion is that it will probably cost you more getting it inspected during certain construction benchmarks, but it will be a more thorough inspection since the inspector will be able to see the construction process. An FHA property inspection is performed by an FHA appraiser. While the FHA appraisal is a necessary and important part of the FHA loan process, it is no substitute for an inspection performed by a state-certified real estate inspector. This inspector is hired by you, the purchaser, and therefore represents you as a purchaser. The FHA appraiser/inspector essentially works for HUD, although the purchaser pays the appraisal/inspection fee.

Dear George: Everyone I know is talking about "earnest money." What exactly is earnest money? Do you have to have this money to buy a home?
- Inquisitive

Dear Inquisitive: Earnest money is a deposit paid by a buyer to hold the seller to a deal and to show good faith. Earnest money may be forfeited to the seller if the buyer defaults. So, the way the public and many real estate licensees and their attorneys interpret that is the more earnest money offered the more earnest the buyer. The fact is that in Texas a buyer is not required as a matter of law to deposit any earnest money with a seller (or more typically with a title company or a real estate licensee representing the seller). However, a written offer to purchase a home that is not accompanied by any earnest money would not be considered by most sellers as a serious offer.

Dear George: I have an option to put in a lock with a one-time float down to a lower rate at the time of closing. The pre-loan FHA interest rate quoted to me is 5.57%. The cost of a 90-day lock is 0.5% of the price of the house, and the rate is 6.125%. The cost of the 120-day lock 0.75% of the price of the house and the rate is 6.25%. However, if I put the money down and the property is not completed or for some reason I do not close by 90 days or 120 days, I will lose the money. In your opinion, do you really think this is a good option?
? Lock Query

Dear Lock Query: It does not sound like an option that I, as a mortgage broker, would eagerly recommend. Your query leads me to the the question: At what point will your lender (or builder offering loan services) lock for no upfront money? It appears that the money is being collected from you to give you a float-down option and to keep you from looking elsewhere for financing if rates go down. Given that interest rates are projected to stay fairly stable, I would recommend that you continue to float until there is an indication that rates are going to rise.