You’ve found your dream home and are moving toward closing. It has a beautiful, finished basement, a recently-updated kitchen and a great deck out back. But as the bank does its final checks, you and your lender learn that some of those features that you love so much are technically illegal. The seller or perhaps a previous owner didn’t pull permits for the renovations, and now the bank is hesitant about underwriting your loan.
Don’t panic. It’s true that work done without permits can complicate a home sale, but it doesn’t have to derail the whole thing.
Buyers, read on to see what to look out for when you’re shopping, and how to address this situation before finalizing your mortgage. And sellers, check out what you can do to avoid this complication in the first place.
What should buyers look out for when a home has unpermitted renovations?
Avoiding roadblocks in your real estate transaction starts with getting as much information as you can as early as you can in the process. As you’re shopping around, it’s a good idea to ask if features not original to the house were done legally. In most places, a seller will be required to disclose whether unpermitted work has been done to a property, although with older homes this question is often answered with an I don’t know.
The most common projects to be done without permits are bathrooms, kitchens and decks, according to Steve Cunningham, chair of the Remodelers Council at the National Association of Home Builders (NAHB). Real estate agents in various markets added that other conversions, like basements or garages to increase living space, are also common trouble spots in this regard.
Often, unpermitted work won’t be done in conformance with local building codes, so if something seems poorly finished during a property tour, it’s probably worth asking about.
“Typically the buyer can tell if something’s been done haphazardly or unprofessionally,” said Lisa Harris, an agent with RE/MAX Center in Atlanta.
Buyers can also research properties to make sure everything is certified, and should work with their home inspector to make sure work has been done properly.
“The seller might not have known because it wasn’t disclosed to them. For the buyer, it’s all about doing your due diligence and checking public records to fully understand what you’re buying,” said Ashley Thomas III, second vice president at the National Association of Real Estate Brokers.
Keep in mind that not all home renovation projects need permits. Aesthetic upgrades like paint, flooring or tile generally don’t. Only work that involves structural updates or changes to the plumbing, electric or HVAC systems usually do.
How can unpermitted work be addressed?
The easiest way to avoid permit issues in a real estate transaction is for the homeowner to get permits for any work from the start.
“When you have a project of that caliber going on and you’re spending that kind of money, you really want to do your due diligence and find a licensed contractor,” Cunningham said. “It protects the value of your home because it’s such a large investment.”
But of course, if the work is already done, that’s a moot point. Getting permits pulled for finished work can be costlier than having them filed upfront, but it’s often the only way to move the property sale along. In some cases, sellers could be required to undo their updates.
“Even if the buyer is ok with it, you could get all the way to underwriting, and the underwriting could derail the transaction at that point, where the underwriter could say, ‘we won’t do the underwriting until this is rectified,’” Harris said.
Working with experienced agents is crucial
Because permit issues make a sale more complicated, it’s especially important to work with knowledgeable real estate agents on sales where projects have been done without the proper paperwork.
Often, the lack of permits is addressed by the seller giving a buyer credit for updates or fixes that need to be done — everything from removing drywall for an inspection to more significant overhauls to get things up to code.
A credit takes responsibility off the seller for the updates and ensures they are done to the buyer’s taste, but also eases the financial burden on the buyer.
“It really needs strong professional agents that can walk both parties through the challenges so everyone can acknowledge how we got here. Usually when that happens, everyone is level-headed and fair,” Thomas said. “It’s common in my experience that we’re able to navigate to keep the transaction on track.”
What sellers need to know
For sellers, it’s important to keep in mind that even in this favorable market, work that’s been done to your home without a permit still puts you at a disadvantage.
Above all, you should disclose any such alterations to your agent as soon as you can. Beyond that, you should be prepared to offer buyers a credit, or possibly make updates to your home before putting it on the market.
“It’s a heart-aching conversation, because there’s no easy answer financially for that problem. You have to tear it out, you have to have it done again, or it needs to be opened up so inspections can be done,” Cunningham said. “I have seen people have trouble selling a house from having bad renovations done that are not permitted.”
Right now, sellers with unpermitted work are in a relatively strong position, however, because housing supply remains low.
“Many buyers are dealing with fatigue, so they might accept something that they wouldn’t in a buyer’s market,” Thomas said.
When a house has had work done without permits, it can make the sale of that property more complicated. But, experts said, that doesn’t mean selling or buying such a home is impossible.
“It can be ok and it’s not a deal killer,” Harris said. “It’s just something where, if you have educated and experienced agents on both sides of the transaction, they can do what they need to do to make it right for everybody.”
Dave says: If you need a cosigner, you're not ready – Northeast Mississippi Daily Journal
How to improve your credit score in 2021: Easy and effective tips
If you’ve ever wondered “What is my credit score?” it’s probably time to find out. Having a good credit score can make life a lot more affordable. If you’re about to buy a house or car, for example, the higher your credit score is, the lower your interest rate (and therefore, monthly cost) will probably be.
Your number may also be the deciding factor for whether or not you can get a loan and ultimately determine if you are even able to buy something you want or need.
So, yes, the goal is to have the highest possible credit score you can, but increasing the number doesn’t just happen overnight. There are important steps to take if you want to increase your score, and the sooner you start working on it, the better.
“If you’re trying to increase (your credit score) substantially to accomplish a goal, you’re really going to have to have as much lead time as possible,” said Thomas Nitzsche, director of media and brand at Money Management International, a nonprofit financial counseling and education provider that advises people on how to legally and ethically improve their credit score on their own.
If you have fair credit and you’re trying to improve the number for a house purchase, for instance, you’ll want to start working on it at least a year in advance, he explained to TMRW.
But even though that sounds like a long time away, you can (and should!) start doing things right now to bump that number up. Below, see seven things you should do — and not do — to help improve your credit score:
1. Review your credit report
The first thing you’ll want to do is pull up a copy of your current report so you know where you stand. You can get free reports from all three agencies — TransUnion, Experian, and Equifax — at annualcreditreport.com. Nitzsche said it’s important to take a moment and understand the financial snapshot of where you are today and where you want to be.
You’ll also want to take some time and look for any errors on your report, which could negatively impact your score. “If your name is misspelled, that’s not going to hurt your score,” he explained. “But if you see a late payment or missed payment (that’s in error), or maybe you have an account that should be reporting but isn’t, then that’s a problem and that will impact your score.”
If there is an error, you should dispute it and try to provide as much proof as you can.
One other thing: You can also ask a creditor to remove an issue if it’s been corrected (i.e., if you paid off a collection debt). Nitzsche said it doesn’t hurt to ask and the worst thing they could say is no.
2. Have good financial habits
“The biggest part of your credit score is payment history, so the most critical thing is never missing a due date,” Nitzsche said. Set up a monthly autopay or add all due dates to your calendar so you never miss a bill.
You can also achieve a higher score when you mix different types of accounts on your credit report. It may seem counterintuitive to get extra points for having debt in the form of student loans, mortgages and auto loans, but as long as you’re paying them off responsibly, it shows that you’re reliable.
3. Aim to use 30% or less of your credit at any given time
Know your credit card limit, and try not to use any more than 30% of that number each month, otherwise your score could lose points for too much credit utilization.
Another thing you can do is ask your bank to increase your limit. “That will give you more flexibility to spend more,” Nitzsche said. You could also pay it off twice a month to keep the balance low. But he does warn that you never know when the balance is going to be reported to the bureau. It can happen at any point during the month, so it might be the day after you make the payment or the day before. “You don’t necessarily want to use the card and pay it the next day because that doesn’t give the bureau the chance to know that you’re using it,” he said.
4. Avoid requests for new credit
If you’re looking to increase your score around the time you want to buy a house or car, you won’t want to open up a new line of credit, like a retail card, credit card or loan. That’s because “hard” credit inquiries like those can lower your score, and sometimes it comes down to a few points over whether you’re approved or what your rate will be, Nitzsche said.
“Soft” credit inquiries, like when an employer checks your credit or when you pull your own report, won’t affect your score.
5. Keep all accounts open, even ones you don’t use anymore
Even if you don’t use that credit card from college, it’s a good idea to just keep it open because closing it could hurt your score. Nitzsche explained that you’ll be dinged some points for each account that is closed. If you want or need to mentally break up with a card, just cut it up instead.
6. Build your credit if needed
If you haven’t established credit yet, you might not even exist … in the credit report space, that is! “If someone has never fallen in delinquency on any subscriptions or utilities or never had collections on anything and they have not utilized credit cards or loans in the past seven to 10 years, they may not have a credit profile at all,” Nitzsche said. “That presents a challenge when you want to buy a home.”
If this sounds familiar, you may have to get a secured credit card where you put down a deposit, he advised. “You still have to make payments and use it responsibly. Not all banks offer them but you can usually check with your local bank or credit union.”
7. Reach out for help
There are many apps and credit-monitoring services that can help you stay on top of your credit score. You could also reach out to a professional credit counselor who can help you navigate your specific situation. (Here’s a good resource about finding a reputable service.)
One last thing: Nitzsche warned that everyone should beware of credit repair scams that claim to be able to increase credit scores for an advance fee to get accurate negative information removed (even temporarily) from credit reports.
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