10 Common Home-Buying Red Flags

You’ve been getting up early every weekend to go to open houses and have spent hours looking at online listings. You’ve finally found a place that you like, but before you make an offer, an important part of the home-buying process is to learn what problems to watch out for.

Most people don’t want to buy a home that is going to require a lot of work or be difficult to finance because it’s structurally unsound or unsafe. A home might look great on the surface, but a smart buyer will order the proper home inspection(s) to see if the house actually measures up prior to lifting any property contingencies.

It can be stressful or even derail the purchase to find out that you’ll need to do all sorts of costly renovations. After you’ve worked hard to find that dream home, you could find out at the last minute that necessary repairs will make you go over budget and find yourself looking for renovation financing vs. traditional financing.

How to Spot Red Flags During a Home Tour

It’s easy to be distracted by a gorgeous wall of windows, a sweet child’s bedroom, or an in-ground pool. But you’ll need to tune in to other aspects of a home with all your senses if you hope to see any of the home-buying red flags on this list during a home tour.

Use your eyes: You’re looking for cracks in foundation or walls, or window or door frames that are askew. Also listen, particularly for the sound of water dripping or wind whistling through problem window frames. Sniff the air too. If you smell anything dank or moldy, that’s a warning sign for sure. But the smell of air freshener or a burning candle could also signal that the homeowner or sales agent is attempting to conceal an unpleasant odor.

Signs Your Dream Home Could Be a Nightmare

Below are 10 common home inspection red flags that would put a home on the buyer-beware list because of the home repair costs and stress involved in fixing the issues. Consider these factors as you continue your search for your new nest, and especially if you’re a first-time homebuyer, lean on professional inspectors for help.

1. Structural Problems

If there is a problem with the foundation or load-bearing walls in the new home that raises a potential health and safety issue, structural repairs could derail your home loan by making the property ineligible for financing, or could wind up costing thousands of dollars. Structural problems aren’t just expensive to fix, they could also be considered unsafe — which is why they should be at the top of any list of things to check when buying a home.

Look for major cracks in the foundation, problems with doors closing, door frames not being perfectly rectangular, or walls or floors that seem to sag. You’ll want to spend the money for a professional home inspection. If the inspection reveals there is a larger issue, a structural engineer’s report may be able to provide additional insight.

💡 Quick Tip: When house hunting, don’t forget to lock in your home mortgage loan rate so there are no surprises if your offer is accepted.

2. Water-Damage Woes

The biggest cause of rot and mold is moisture. So if your potential new home has leaking pipes or a roof that lets in water, it won’t just be expensive to replace your roof or find where the leak is coming from — the leak could have already created other problems.

Water stains and mold are red flags when buying a home. Not only can mold have implications for your health, it could indicate a bigger problem with the house. If you see either of them, look into the cause of the stain, because a new roof or new plumbing could set you back a significant amount of money. Dry rot and related problems like mold can also fall under health and safety issues and, as a result, affect the home’s eligibility for most types of home mortgage loans.

3. Poor Drainage

Poor grading and drainage can potentially cause huge problems with the foundation or basement of your home, so it should be high on your list of home inspection red flags. When it comes to bad drainage, things to look for when buying a home can include but are not limited to: pooling water around the foundation; leaking in the basement; gutters that are blocked or overflowing; and soil being moved by water in any flower beds around the home. While there are ways to fix poor drainage and improper grading if it’s minor, you might struggle with larger drainage problems if the home is in a low-lying area.

4. Bad Plumbing

The last thing you want is for your sink to spring a leak. Plumbing problems could have an array of causes, including improper installation or older pipes that need to be replaced or are leaching metals into your drinking water. Plumbing that regularly leaks could cause water damage, which, as noted previously, could have some pretty serious consequences (like mold and rot). The home inspector will generally test the plumbing system, but as you look at houses, be observant and try running all the faucets and flushing the toilets. Keep an eye out for any signs of possible water damage and be aware of any funky smells.

5. Pests

There are a few ways to avoid buying a pest-infested home, including having a basic home inspection, for starters. If the general home inspection calls out pest issues, it is recommended to go a step further and request a pest inspection report from a licensed pest inspector.

If the inspector finds signs of bugs, it might be possible to request that the seller fix the infestation before you close on the house. Sometimes, pest infestation can mean a significant discount, which may be appealing to some buyers. But getting rid of certain kinds of insects (or bats) can be very costly, complicated, toxic, and even require you to leave your home while the work takes place. So the discount may not actually be as rosy as it seems. Lenders do not usually close on a traditional home loan with a serious pest issue because it may present a health and safety problem.

6. Electrical Problems

A general home inspection will cover basic electrical items, but some buyers opt for an additional electrical inspection. Depending on when the home was built, there could be improper or even dangerous wiring throughout the house. That could affect eligibility for home financing due to health and safety issues, increase the fire risk in your home, or affect how you budget for buying the house.

7. Neighborhood Troubles

You might have found a beautiful home, but what if the location isn’t ideal? If your home is in a neighborhood that has a high number of vacant properties, a high crime rate, or a poorly rated school system, your investment might not pay off. Ask your real estate agent and neighbors about the neighborhood, stop by at different times, search online for the area’s crime statistics, and check out the reputation of local schools.

💡 Quick Tip: Not to be confused with prequalification, preapproval involves a longer application, documentation, and hard credit pulls. Ideally, you want to keep your applications for preapproval to within the same 14- to 45-day period, since many hard credit pulls outside the given time period can adversely affect your credit score, which in turn affects the mortgage terms you’ll be offered.

8. Homeowners Association Problems

If you’re moving into a development with membership dues, you’ll want to know more about the homeowners association (HOA). Your lender will likely require you to obtain a completed Homeowners Association Questionnaire, and once this form is completed, it could answer many of the questions you may have, such as: How much are the HOA fees? What are the rules around making changes to your property? Is there any pending litigation against the condo association? Can you rent out your place or use it as an Airbnb when you go on vacation? Before you put in an offer, it’s a good idea to find out the answer to these or any other issues of importance to you and your family.

9. DIY Improvements

Watch out for shoddy renovations. If the house looks like it has undergone a recent facelift, have a close look at the workmanship. If there are visible shortcuts, there may be other areas of the house that weren’t properly renovated that could cause you headaches in the future. Check them carefully and make sure the major improvements or additions were done with the proper permits.

10. Older Windows

Older windows could translate into higher heating and cooling costs for your home. Moisture leakage can cause mold issues over time. Those costs add up, so you’ll want to add windows to your list of things to look at when buying a home. On your house tour, look for windows that stick, have discoloration around the indoor casing, or are warping. Updating windows (or replacing them completely) could be costly.

Questions to Ask the Seller or Agent

Real-estate listings will often tout newer mechanicals or a recently renovated kitchen or resurfaced roof. But as you’re preparing to buy a house, it’s always a good idea to ask how recently major repairs have been made on the home. It’s always a good idea to try to gain insight into the age of the major mechanicals, including the roof, HVAC system, and water heater. And if you can get the owner to note any major (or minor) issues with the house, that’s even better.

Sometimes it’s just a matter of getting a heads-up on something the next owner should be aware of, such as the fact that the whole-house water filter needs replacing, or the ice builds up on a particular spot in the driveway in the winter. It’s helpful to know, but not a deal-breaker. If you’re from out of town, asking the owner or agent about their neighborhood might yield some important facts that aren’t obvious to the eye, such as that truck traffic has increased significantly since the new logistics center was built on this side of town, or that utility prices in the area have risen significantly.

The Role of a Home Inspector

Your own efforts to spot warning signs when touring a home likely won’t be enough if you decide to put down an offer on the property. In that case, most buyers want a professional home inspector’s report. Identifying an inspector to report on the property, like checking mortgage rates or getting mortgage preapproval, is another one of those to-dos that you’ll need to tackle on your way to the fun stuff, like figuring out what color to paint your new bedroom. Passing the home inspection will also be an important part of getting through the real-estate purchase contract process.

What is the biggest red flag in a home inspection? A home inspector would likely be looking for the issues on the list above, with structural issues or water damage being two giant warning signs. But home inspectors are trained to see the problems you might not recognize when walking quickly through a property. Many states require inspectors to be licensed, and there are several professional organizations that require their members to follow certain standards of practice. Some buyers, particularly those in very competitive housing markets, will choose to waive inspection. But in general, it’s a good idea to have a property inspected.

If you are financing your home with an FHA loan, there will be specific mortgage loan requirements from the Federal Housing Administration. Your lender will help guide you through this process.

How Inspections Identify Major Issues

An inspector will do a visual examination of the property and will generally be looking for the same problems a potential homebuyer might look for. But with training and experience, an inspector might be more likely to spot a problem. If you hire an inspector, it’s important to understand what isn’t going to be included in a standard inspection, so that you can hire a specialized inspector if necessary. For example, a standard inspection might not reveal issues with well water quality or a septic system. There are separate inspection processes for termites, asbestos, lead paint, and specialized testing for radon gas, for example. A standard inspection also won’t tell you if any improvements in the property were made in compliance with municipal code.

When to Walk Away From a Deal

If a home inspection turns up a serious problem with a property, you’ll need to ask yourself whether you want to press on and purchase the home anyway. If so, you can start by asking the buyer to repair the home, lower the price, or provide a rebate at closing to cover the cost of the repairs, which you would then be responsible for making. If none of these solutions satisfies you, then you may have no choice but to walk away from the deal — and potentially risk losing your earnest money. But if the cost of fixing the issue is beyond what you can afford or want to spend, you may have no other choice.

The Takeaway

In certain situations, a buyer may consider making an offer on a house even with one or two of the home inspection red flags on this list. But before committing to a property that needs TLC, you’ll want to add up what the potential repairs may cost. Doing the math now could mean fewer financial surprises when you move in. And in some cases, it may be possible to negotiate with the seller so that major issues are addressed before the closing.

Looking for an affordable option for a home mortgage loan? SoFi can help: We offer low down payments (as little as 3% - 5%*) with our competitive and flexible home mortgage loans. Plus, applying is extra convenient: It's online, with access to one-on-one help.

SoFi Mortgages: simple, smart, and so affordable.

FAQ

What’s the biggest red flag on a home inspection?

There are many issues that can be red flags on a home inspection, but the most serious include structural or foundation problems, major water damage or an active leak, or problematic electrical wiring. All of these can be very costly to repair and can create safety or health hazards.

How often do homebuyers pull out of the deal?

According to the National Association of Realtors®, 5% of would-be buyers pull out of a deal before reaching the closing.

When buying a house, how do I protect myself in case the home inspection finds a problem?

An inspection contingency clause in the contract could allow you to pull out of the deal without losing your deposit if an inspection finds a significant flaw in the home you’re hoping to buy. You and the seller might also come to an agreement whereby the seller repairs the problem or credits you for the cost of repairing it. But with an inspection contingency, you can also walk away.

Can I still negotiate the price after a home inspection?

It’s always possible to try to negotiate a lower price after receiving bad news on a home inspection. But whether or not you will be successful will rely on how eager the seller is to move forward, which can in turn depend on the current market conditions in the area where the property is located. If it’s a seller’s market or the seller already has other offers, you may find there’s no wiggle room.

What happens if red flags are found after closing?

Whether or not the buyer of a home has any recourse if a major defect is found in the property after they take possession will depend in part on whether the seller knew that the defect was present. Evidence that the seller tried to conceal a flaw (by, say, constructing a wall or paving over a leaking oil tank) will be a factor. If neighbors tell the buyer that the seller was aware of a problem, that could also work in the buyer’s favor. Filing a lawsuit to try to recoup the price of repairs can itself be a costly solution, so consider first reaching out to the seller to explore compensation.

Photo credit: iStock/Jitalia17

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

SoFi Mortgages
Terms, conditions, and state restrictions apply. Not all products are available in all states. See SoFi.com/eligibility-criteria for more information.

*SoFi requires Private Mortgage Insurance (PMI) for conforming home loans with a loan-to-value (LTV) ratio greater than 80%. As little as 3% down payments are for qualifying first-time homebuyers only. 5% minimum applies to other borrowers. Other loan types may require different fees or insurance (e.g., VA funding fee, FHA Mortgage Insurance Premiums, etc.). Loan requirements may vary depending on your down payment amount, and minimum down payment varies by loan type.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
^¹FHA loans are subject to unique terms and conditions established by FHA and SoFi. Ask your SoFi loan officer for details about eligibility, documentation, and other requirements. FHA loans require an Upfront Mortgage Insurance Premium (UFMIP), which may be financed or paid at closing, in addition to monthly Mortgage Insurance Premiums (MIP). Maximum loan amounts vary by county. The minimum FHA mortgage down payment is 3.5% for those who qualify financially for a primary purchase. SoFi is not affiliated with any government agency. Third Party Trademarks: Certified Financial Planner Board of Standards Center for Financial Planning, Inc. owns and licenses the certification marks CFP®, CERTIFIED FINANCIAL PLANNER®
⁺Lock and Look program: Terms and conditions apply. Applies to conforming, FHA, and VA purchase loans only. Rate will lock for 91 calendar days at the time of pre-approval. An executed purchase contract is required within 60 days of your initial rate lock. If current market pricing improves by 0.25 percentage points or more from the original locked rate, you may request your loan officer to review your loan application to determine if you qualify for a one-time float down. SoFi reserves the right to change or terminate this offer at any time with or without notice to you.
This article is not intended to be legal advice. Please consult an attorney for advice.

SOHL-Q126-004