What are top originators telling their clients about the appraisal process? Some have created a table of helpful information that those refinancing can provide that will make things go more smoothly. Recent regulations have prohibited borrowers from trying to influence their appraiser, but it is important for the borrower to provide information that is important for the appraiser to consider in valuing the home. Communication is critical, as is the quality of that information.
Appraisers are primarily concerned with recent market sales, but it is important for borrowers to remember that this is only part of the valuation. Appraisers usually use three approaches in determining the value of a house. The first is the cost approach (the buyer will not pay more for a property than it would cost to build an equivalent). The second is the sales comparison approach (comparing a property's characteristics with those of comparable properties that have recently sold in similar transactions). And the third is the income approach (similar to the methods used for financial valuation, securities analysis or bond pricing).
There are questions appraisers often ask homeowners. Homeowners should save information about any renovations. Borrowers should try and be specific about the upgrades and when the remodeling was done, such as upgrading the AC unit, adding insulation and painting the interior of the house. A refinancing borrower can certainly inform the appraiser of the reason why they bought the home and things about the neighborhood that may attract buyers. The other information about the neighborhood section can be utilized for further explaining any relevant changes to the neighborhood such as parks, streets, land uses, businesses, etc.
The key to this process is sharing enough facts to the appraiser so they can accurately assess the property. Once again, the information provided is in no way intended to sway the appraiser a certain way, it’s merely informational, as this will be pertinent information the appraiser will ask the borrower whether or not it is provided upfront. Showing initiative in data gathering will aid the appraiser’s process and may even speed up their assessment which will benefit everyone involved in the transaction.
Plenty of new borrowers are buying a new home and selling their old home. With all the changes in the mortgage world, can this still be done? Sure it can – it just requires a game plan, and a good lender and real estate agent can help.
The homebuyer often needs the cash proceeds from the sale of the current home in order to qualify for the new mortgage on the new home. Each situation is different but selling first and then buying second would be ideal; however, this method probably involves moving into a temporary rental in the interim – and few people want that.
Bridge loans, once popular, would provide the home seller cash from an interim loan that would be used as the down payment of the new home. The interim loan is secured by the departure home and would be paid off as soon as the departure home was sold. This way, the homebuyer could conceivably buy their “move-up” home before selling their departure home. The trouble with this arrangement is that the homebuyer potentially now has three mortgages: one on the departure home (assuming it is not free and clear); one on the new home and one on the interim loan. Not many homebuyers can qualify for three mortgages unless they have excellent income and low mortgage payments. Even if the homebuyer could qualify and make all of the mortgage payments, what would happen if the departure home did not sell?
The good news is that it is possible to sell a house and buy a house at (almost) the same time but to get the timing right it takes cooperation from the people who are buying your home and the sellers of the home you are buying. Unless you could qualify for two mortgages (one on the current home plus one on the move-up home), this method would involve a contingent offer. Your offer to buy your next home would be contingent on your current home selling first. In this hot real estate market, however, it might be rare to find a seller willing to accept your offer – there may be other buyers without this in their contract.
What about turning the old house into a rental? Those homeowners with enough cash for a down payment on their next home frequently ask about keeping the departure home and using rental income to offset the PITI (principal, interest, taxes, and insurance). While this is a potentially good way to be able to make two mortgage payments affordable, Fannie Mae and Freddie Mac have established some strict restrictions. First of all, the departure house that is to be rented must have 30 percent equity (70% or lower LTV) or 25 percent if the new loan will be an FHA loan. The departure home must have a signed rental agreement with the prospective tenant and the tenant’s deposit money must also be in the hands of the homeowner. If all that is in place, the landlord will be allowed to use just 75 percent of the rent to offset the PITI.
If you would like someone to contact you to discuss your options CLICK HERE
Borrowers know that once they apply for a loan (practically any loan), the lender will underwrite the loan. The underwriting time it takes to review the loan, looking at the borrower’s income, credit report, appraisal of the property, and so on, varies by type of loan and lender. But borrowers should know that approval is never a sure thing, even if they have millions in the bank, or a flawless 850 FICO credit score.
We mention this because the Federal Financial Institutions Examination Council (FFIEC) released Home Mortgage Disclosure Act (HMDA) data. The report shows loan approvals AND declinations: hundreds of thousands of loans needed to purchase homes were rejected. Yes, some of these borrowers went to another lender, but it is a useful exercise for potential borrowers to know why previous borrowers were turned down. And yes, the 5 C’s of credit matter: character, capacity, conditions, capital, and collateral.
The broad categories for turn downs include credit history, affordability and income, assets and down payment, and property issues. The list of reason start with the top five: loan amount too big, income too low, inability to document income, using rental income to qualify, and the DTI ratio being exceeded.
Moving down the list, the FFIEC’s HMDA data shows mortgage rates rise and push payments too high, payment shock, LTV (loan to value) too high, inability to obtain secondary financing, and underwater on mortgage. (Remember that there are programs for such individuals.) Next is not enough assets, unable to verify assets, no job or job history too limited, changed jobs recently, self-employment issues, using business funds to qualify, limited credit history, credit score too low or the spouse’s credit score too low, and so on.
It is not difficult to see that the reasons all return to the 5 C’s of credit, and these need to be kept in mind when applying for a loan, and for dealing with underwriting conditions.
One of the most common questions a loan officer is asked is, “How long will my loan take to do?” Of course, when hardly any documentation was required, loans took much less time. But now, with increased underwriting, documentation, and so forth, it is taking longer. And in some instances, much longer. Refinance applications and appraisal complications are holding up home sale closings, according to a recent survey. According to the report, the normal timeline for a closing is about 30 days. However, the survey found the timeline to be between 45 and 60 days.
Adding to the average time is the length of time required for short sales and sales of foreclosed homes. These have always taken longer to close, but since this component made up over 44% of the nationwide market in September they have really added to the timelines. The survey of 2,500 real estate agents found that one major source of delays among short sales is mortgage origination preapprovals, which sometimes expire before all interested parties agree.
Sales of foreclosed homes are encountering delays when property damage complicates the appraisal process. In many parts of the nation Realtors are saying, “Much more than half, and in some cases three-quarters, of all distressed property closings have been delayed because of loan conditions.” And in some states, like California, laws are further aggravating the problem by forbidding forced deficiency notes on short sales. Under the new law, “seconds are not willing to settle,” stated one California agent, adding, “Mortgage application timelines run out for the buyers waiting to receive acceptance, counter or declination.”
Experienced loan officers tell clients, however, that well documented loans can sail through the system – they see it every day. They are in the ideal position to tell borrowers what is required, and how long it should take to fund your loan.
“Should I keep renting, or should I buy?” This is a recurring question of anyone with a landlord. The answer to that question is most assuredly, you should buy. That being said, increasing numbers of renters these days are not taking action. Some believe that we will see another real estate bubble, or another recession. But it could also be likely that renters simply don’t realize that they can afford to buy. Here are some reasons why buying can be both attainable and affordable, and why now may be a smart time to consider homeownership.
Unlike renting, buying a residence is an investment. Every time you pay your mortgage, you are increasing the equity in your home and your own financial wealth, versus paying rent, which is only increasing your landlord’s financial wealth. Moreover, rent payments in many US markets are increasing each year, but the payment on a 30-year, fixed-rate mortgage doesn’t increase.
It’s good to remember that a seemingly small increase in the value of a home can translate into a high percentage return on a borrower’s investment. For example, a borrower purchasing a $100,000 home and putting 20% down or investing $20,000 would actually enjoy a 22% return on their investment if the home grew just 4.4%.
Incomes are ahead of home prices and low interest rates are keeping ownership affordable. The national family median income is $64,751; to purchase a home at the median price with 20% down would require an income of $40,266, or $45,299 with 10% down.
Lastly, mortgages consume a smaller share of household income than they did in the past. Today’s owners devote 15.3% of their incomes to a mortgage, which is well below the 22.1% their mortgages consumed between 1985 and 1999. Meanwhile, according to Zillow, renters put roughly 29.5% of their income to rent, compared to 24.9% before the bubble.
As you can see, the numbers make a solid case: owning could very well be the better option and is achievable for qualified borrowers. One of the main things keeping renters from being owners is that they haven’t done the research or reached out to learn more about how they may be able to finance a home.
Content on this site is for informational purposes only. It is not to be construed as legal, financial, personal or other advice. Information and opinions offered are those of independent sources and may not be endorsed by American Mortgage Service Company and/or AmericanMortgage.com. We make no representations as to the suitability or validity of information in a blog on this site. We are not liable for any errors or content of blogs or for any losses, injuries or damages arising from its display or use. There is no obligation to update information provided in a blog on this site.