November 5, 1999
It's a homebuyer nightmare. Each year families across America are stuck with thousands of dollars in unexpected home repairs after they move into what they thought were their dream homes. In some cases, families go broke trying to make repairs and lose their homes through foreclosure or bankruptcy.
U.S. Housing and Urban Development Secretary Andrew Cuomo believes home appraisers can catch those hidden problems before the sale is completed. Beginning in February 2000, HUD's new Homebuyer Protection Initiative will help the one million homebuyers who buy homes with HUD-insured mortgages avoid unexpected —and expensive— home repairs.
The home appraisal plays an important role in HUD's Federal Housing Administration mortgage insurance programs. FHA makes it easier for homebuyers to qualify for mortgage loans by insuring the loans and guaranteeing repayment to the private lender. But before FHA agrees to insure a mortgage, the lender must get a home appraisal. The appraisal estimates the value of the home, checks that it meets FHA's minimum property standards, and assures that it could be sold by FHA in the event of foreclosure.
Under the Homebuyer Protection Initiative, FHA will only insure homes that have been examined by state-licensed appraisers. As an added protection, the qualifications of the 30,000 appraisers who do FHA appraisals will be re-tested.
The Initiative also insists on full disclosure of appraisal results. If a state-licensed appraiser uncovers defects in the home, the prospective homebuyers must be told of the findings. FHA will refuse to insure the mortgage until defects are repaired.
Finally, the Initiative will sponsor a new education campaign to teach consumers the difference between appraisals and home inspections. Appraisals are part of the lending process. But home inspections —which are more thorough than appraisals— go further. They give buyers greater peace of mind about the property they hope to buy. A home inspection closely evaluates the home and its plumbing, heating and cooling, and electrical systems. It estimates the systems' remaining useful life and identifies items that need to be repaired or replaced. Wouldn't you want to know as much as you can about a property before you sink all your hard-earned cash into it?
To sum up, HUD's Homebuyer Protection Initiative provides a higher level of protection for consumers against appraisals that fail to uncover the need for major repairs in homes up for sale. But it also asks homebuyers to become better informed about the physical conditions of homes they want to buy. HUD wants to be sure that Americans have the knowledge they need to make educated decisions about buying a home.
Homeownership is good for America. Homeowners take pride in their property and get involved in neighborhood activities and local schools. It's a great way for families to accumulate wealth, too. HUD wants to make sure that the American Dream of owning a home is within reach of families everywhere.
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