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Archive for: Appraisal
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Seven Things Your Agent Should Know About Your Bay Area Mortgage Approval
01 April 2010 / Home Buying Process / 0 Comment
While many experienced Bay Area real estate agents have a general understanding of the mortgage approval process, there are a few important details that frequently get overlooked which may cause a purchase to be delayed or denied.New regulation, updated disclosures, appraisal guidelines, mortgage rate pricing premiums, credit score, secondary approval layering, rescission deadlines, property type, HOA insurance requirements, title and property flip rules are just a few of the daily changes that can have a serious impact on a Bay Area borrower's home loan financing.
With today's volatile lending environment, it's obviously important for home buyers to get a full loan approval which clearly defines all contingencies that pertain to each unique home buyer's scenario prior to spending any time looking at new homes with an agent.
Either way, we've listed a few of the top things your agent should keep in mind while showing you new properties in the Bay Area:
Caution - Agents Beware:
Property Type -
High-Rise, Condo, Town House, Single Family Residence, Dome Home or Shoe House... all have specific lending guidelines that can influence down payment, credit score and mortgage insurance requirements.
Need to sell one home before moving into another? Is a property considered a second home if it's in the same city? What if I'm buying a home for my children to live in, it is still considered an investment property?
These are just a few of several possible residence related questions that should be addressed by your agent and loan officer at the initial loan application.
Mortgage Rates are typically locked for a 30 day period, and one of the only ways to get a new rate is to switch mortgage lenders. Rates also have certain adjustments for property / residence type, credit score and down payment which could have a big impact on monthly payments and therefore approvals.
A 1% increase in rate could literally mean the difference between an approval or denial.
Underwriters watch the news as well. Bay Area Borrowers who work in a volatile industry during hard economic times may have to jump through a few extra hoops to prove that their employment and income is secure.
Job changes, periods of unemployment or property location in relation to the subject property are other things to consider that may cause a speed bump in the approval process.
Title / Property Flip -
A Flip is considered a property that has been purchased by an investor and quickly sold to a new buyer within a 30-90 day period. Generally, an investor will do a little rehab work, fresh paint, landscaping.... and try to re-sell the property for a significant profit margin.
While it seems like a perfectly fair transaction, many lenders have strict guidelines in place that prevent Bay Area borrowers from obtaining financing on properties that have a previous owner with less than 90 days of documented ownership.
These rules change frequently, and are specific to particular property types, so make sure your agent is aware of all the boundaries associated with your approval letter.
Homeowner's Association Insurance -
Some Bay Area lenders require Condos and Town House communities to have sufficient insurance and reserves coverage pertaining to specific ratios on units that are owner occupied vs rented.
It may also take a few weeks and cost up to $300 to receive an HOA Certification, so make sure your Due-Diligence period is set accordingly in the purchase contract.
Appraisal Ordering Procedures -
Appraisal ordering guidelines are changing quite frequently as regulators implement many new consumer protection laws created to prevent future foreclosure epidemics.
Unfortunately, some of the new appraisal regulations have proven to slow the home buying process down, as well as confuse lenders about the true estimate of neighborhood values.
VA, FHA and Conventional loan programs all have separate appraisal ordering policies, so make sure your agent is aware of which loan you're approved for so that they document any anticipated delays in the purchase contract.
For example, if an appraisal takes three weeks and the average time for an approval is two weeks, then it probably isn't smart to write a purchase contract with a four week close of escrow.
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Four Possible Reasons To Refinance in the Bay Area
31 March 2010 / Mortgage Refinance, Refinance Process / 0 Comment
A mortgage is generally the largest debt most homeowners have to manage in the Bay Area. It's a good idea to give your personal real estate finance portfolio a check-up at least once a year.Since there are many reasons a homeowner may choose to refinance, we'll take a look at the four most common.
1. Mortgage Rates Drop:
Typically, the most common reason that Bay Area homeowners refinance their mortgage is to secure a lower interest rate. Interest rate and loan amount determines the total cost that a borrower will pay. The lower the interest rate, the less the overall cost will be. Interest is calculated on a daily basis and usually paid back to the lender on a monthly basis.
2. Lower Payments:
Lowering a mortgage payment can be achieved by lowering the mortgage rate, lengthening the loan term, combining two or more loans or removing mortgage insurance.
3. New Mortgage Program:
Refinancing an Adjustable Rate Mortgage (ARM) to a new Fixed Rate Mortgage (FRM), combining a first and second mortgage or paying off a balloon loan are three possible reasons to explore a refinance.
4. Debt Consolidation:
If there is sufficient equity, sometimes paying off consumer debt by combining all debts into one lower monthly mortgage payment can significantly reduce the short-term deficits in a budget. However, it's important to keep in mind the total cost of that debt by adding it into a 30 year mortgage payment.
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Frequently Asked Refinance Questions:
Q: Do I have to refinance with my current mortgage company?
No, you may choose any company to refinance your Bay Area mortgage since the new loan will replace the existing mortgage.
Q: Is it easier to refinance with my current mortgage company?
It is possible your current mortgage company may require less documentation, but this could add additional cost or a higher interest rate. Do your homework and shop around to make sure you're getting the best deal.
Q: Will I automatically qualify if I've never made any late payments?
No, you will have to qualify for your new Bay Area refinance. However, certain programs will allow for reduced documentation like a FHA to FHA Streamline Refinance.
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What Do Appraisers Look For When Determining A Property's Value in the Bay Area?
29 March 2010 / Real Estate Appraisals / 0 Comment
Most people are surprised to learn what appraisers actually look at when determining the value of a real estate property in the Bay Area.A common misconception Bay Area homeowners generally have is that the value of their home is determined after the appraiser has completed their physical property inspection.
However, the appraiser actually already has a good idea of the property's value by the time they have scheduled an appointment to stop by the property.
The good news is that you don't have to worry so much about pushing back an appointment a few days just to "clean things up" in order to help influence the value of your Bay Area property.
While a clean house will certainly make it easier for the appraiser to notice improvements, the only time you should be concerned about "clutter" is if it is damaging to the dwelling.
The Key Components Addressed In An Appraisal
The Site:
Location, view, topography, lot size, utilities, zoning, external factors, highest and best use, landscaping features...
Design:
Quality of construction, finish work, fixed appliances and any defining features
Condition:
Age, deterioration, renovations, upgrades, added features
Health & Safety:
Structural integrity, code compliance
Size:
Above grade and below grade improvements
Neighborhood:
Is the property conforming to the neighborhood?
Functional Utility:
Is the Bay Area property functional as built - style and use?
Parking:
Garages, Carports, Shops, etc..
Other:
Curb appeal, lot size, & conforming to the Bay Area neighborhood are obvious to the appraiser when they drive down into the neighborhood pull up in front of your home.
When entering your home, they are going to look at the overall design, condition, finish work, upgrades, any defining features, functional utility, square footage, number of rooms and health and safety items.
Be sure to have all carbon monoxide and smoke detectors in working condition.
Since the appraisal provides half the weight in any credit decision involving the security of real estate, the appraisal should be done by a qualified, licensed appraiser whom is familiar with your Bay Area neighborhood, and the type of home you are buying, selling or refinancing.
If you're interested in what specifically appraisers are looking for, here is a copy of the blank 1040 URAR form that is used by every appraiser in the country.
Related Update on HVCC:
Appraisers hired for a mortgage transaction on a conforming loan are chosen from a pool of qualified appraisers at random. Neither you nor your Bay Area lender has the flexibility of deciding which appraiser will inspect your home.
This recent change was brought on with the Home Valuation Code of Conduct HVCC, and is effective with conventional loans originated on or after May 1, 2009.
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Understanding the Difference Between an Appraisal vs Neighborhood Listing Prices in the Bay Area
28 March 2010 / Real Estate Appraisals / 0 Comment
Why is there such a difference between what my appraised value is and the price similar homes are selling for on my street in the Bay Area?It’s a great question, and you don’t have to be a mortgage professional or a real estate agent to understand the answer.
The distinction lies in the purpose of the two valuations and who is responsible for creating them.
The purpose of an appraisal is to make sure that an independent non-interested third party verifies the “most likely” sale price based on the market value and condition of the home.
Appraisals are meant to be a realistic determination of the value of a home if it were to sell in the current market, in its current condition.
In addition, appraisers are governed by rules intended to standardize the subjective process of determining a home's value.
Some of the key factors appraisers look at are: location, above ground size, room count, bathroom count, style of home, condition of property, amenities, and market conditions such as how long it takes for home to sell and if values are increasing, decreasing or steady.
Appraisers are also asked to look only at comparable sales within a certain distance, usually one mile except in rural areas, and within a specified period of time, which is 3 months in the current market.
Listing Prices:
Listing prices on the other hand are influenced by the real estate agent, and set by interested and often emotional sellers.
Sellers are not held by any rules when they list a home. In some cases, sellers take what they paid for the house, add what they have spent on improvements and even add amount for profit.
Often times, sellers will list their home based on the amount needed to pay for the real estate agent, closing costs and cover the amount of the mortgages.
Extra low prices are generally the result of an extra motivated seller that has to sell and move in a rush, so they'll list their property below market comps in order to be the most competitive.
Throw in bank owned homes (foreclosed properties), and listing prices may be all over the place without a logical explanation due to an asset manager making decisions from another part of the country.
The Verdict:
While list price is never a good indication of what a home in your neighborhood is worth, appraisals are not an exact science that will determine the true value of your home either.
Some will argue that a home is worth what people will pay for it, so there's obviously a little room for personal interpretation. Either way, the bank securing that piece of real estate for a mortgage loan generally always has the final opinion that matters the most.
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Five Myths About Bay Area Home Values
28 March 2010 / Real Estate Appraisals / 0 Comment
During periods of economic growth, when Bay Area home values are typically just going up, most homeowners do not question appraisals much.
And in times of turmoil when Bay Area property values are declining, home sellers and even listing agents quite often question and pick apart appraisals.
However, the actual appraisal process changed very little over the course of the housing boom and bust cycle American homeowners witnessed between 2001 - 2009.
Since the topic of home values seems to be a hot discussion, let's address the top five appraisal myths.
Appraisal Myths / Questions:
"I just put $15K into the property, why isn't the appraised value higher? "
Not all improvements to the Bay Area property are equal in producing added value. A local real estate investment club used to tout buying a run-down, roach-infested property cheap, and after de-bugging and adding a fresh coat of paint and carpet - *presto* - the house would appraise like the new homes up the street.
Even with cosmetic repairs, the Bay Area property may still be much more comparable to the foreclosure next door than the new home a block away. Look first to the "guts" of the property, the electrical, heating & air, etc. If they are updated, then the number of beds/baths and square footage are the next biggest weight, followed by a genuine updating of cosmetic improvements.
"But my home really compares to some of the properties in the neighborhood across the way..."
For example, if a Bay Area homeowner preparing a house to sell adds $150,000 in upgrades to the kitchen, built-in cabinets and flooring, it may help the property show better in an open house and in magazine advertisements.
However, the seller might still be stuck with a $450,000 appraised value like the three comparable properties on their street vs the $750,000 they were hoping to list it for.
Even though the Bay Area neighborhood across the main street had similar homes in the higher price range, especially after the seller's extensive upgrades, appraisers will always use homes from the actual neighborhood to establish value first.
So basically, the seller simply over-improved their home for their specific neighborhood.
"This appraiser included foreclosures as comps - that's not fair"
It isn't fair, especially if your home is well-kept and in great condition compared to the run-down foreclosures in the neighborhood.
Unfortunately, if every recent sale, or nearly all sales, are foreclosures at reduced prices, then the appraiser is forced to use the recent sales and trends as comparable values. High foreclosure rates generally depress values and show a trend of lowering prices.
And abnormally high foreclosure rates generally depress values and show a trend of constantly lowering value.
"But I just put in a $50K pool, doesn't that count for anything?"
Pools and professional landscaping rarely see a dollar for dollar value add on a property in the Bay Area. The value is going to mainly be based on comparable sales in a neighborhood.
"How can similar homes in the same neighborhood appraiser for such different values?"
This is a typical question for older neighborhoods where similar models may have drastic price differences.
Additional rooms and square footage can be the main reason for one Bay Area property appraising higher than another.
Keep in mind, just because the market trend in a particular neighborhood is improving over time, the individual properties need to meet the same conditional improvements as the others in order rise with the tide.
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An appraiser is looking at several things when determining the value of a Bay Area property: improvements, size and square footage of the living area, neighborhood amenities, location and the market trends around the area.
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