Consumers are often baffled by the home appraisal process. They may feel their home is worth a certain dollar amount, and therefore, the appraised value doesn't make sense to them. It is important to know that appraisal guidelines are dictated by the lenders. In many states, the lenders must disclose the purpose of the appraisal, as each situation carries its own set of rules.
In essence, lender guidelines force appraisers to put a fair market value on a home based upon comparable sales in the area where the home is located, as the home must be bracketed according to size and value. For example, there is no set amount associated with a great view, pool, spa, bathroom upgrades, etc. If a homeowner installs a custom pool that cost them $30,000, and the local marketplace supports the value of a pool at $15,000, that item will be bracketed as [$15,000] on the appraisal.
Upgrades can usually be expressed at full value in newer homes since they required investing additional money onto the cost of building the home. On the other hand, the amount invested in upgrading or remodeling an older home is rarely reflected in full in the final appraisal. The reason is the home had value in its original condition, and again, the value of the upgrades must be supported by comparable examples within the same marketplace.
These comparisons must be drawn from current market activity within the last six months. Some lenders may want to look at both closed and pending sales to see if there is any room for negotiation. This is a safeguard to prevent appraisers from over-valuing the home in question. It is further stated in the guidelines that appraisers can only place a value on homes that have closed escrow. However, when property values rapidly increase within a marketplace, appraisers are generally permitted to make concessions and put more weight on the evidence provided by comparisons to pending sales and listings. This allows for a "real time" appraisal.
Although there is no formal standard to speak of, most lenders give the appraiser a 5% margin of error. If the file is reviewed and the appraiser is off by 8%, there is a good chance the value will be cut by the full 8%. It is in the best interest of both the appraiser and the homeowner not to push the value up higher than the market will support, otherwise the property evaluation may be exposed to a strict appraisal review.
As a loan executive, I make it a point to follow lender guidelines at all times, and work within the systems they provide. This promotes a good relationship with the lender, and smooth closure for my borrowers. As always, you are welcome to contact me if you have any questions.
It's not just banks and lenders that rely on credit scores to help make important credit decisions. Landlords, employers, insurance companies, and even cell phone and other utility companies all reportedly utilize credit scores to help determine their business and credit relationships with consumers. This means that your credit is the most important component of your entire financial portfolio. Because of this, monitoring and managing your FICO score is vital, especially if you're looking to buy or refinance a home anytime in the near future.
|
FICO Scores |
APR |
Monthly Payment |
|
760-850 |
5.751% |
$1,751 |
|
700-759 |
5.973% |
$1,793 |
|
660-699 |
6.257% |
$1,849 |
|
620-659 |
7.067% |
$2,009 |
|
580-619 |
9.165% |
$2,449 |
|
500-579 |
10.194% |
$2,676 |
Source: Myfico.com (30 year fixed-rate mortgage on $300,000)
The above chart from MyFico.com clearly reveals the relationship between higher FICO scores and lower interest rates and monthly mortgage payments. According to Experian®, one of the three main credit bureaus in the US, FICO scores also accurately reflect “the likelihood of a borrower becoming delinquent on a loan or credit obligation in the future.” In other words, the FICO scoring model looks to the past to “predict” the future risk a borrower represents to a bank or lender, and then prices the loan accordingly.
Not long ago, a FICO score of 680 was pretty good. In a tough credit market like today's, however, a 680 could be devastating to the bottom line of consumers looking to buy or refinance a home. In fact, thanks to Loan Level Price Adjustments (LLPA) from Fannie Mae and Freddie Mac, having less than a 720 in today's credit environment will cost you big: up to 2% in points or up to a 1% increase in your interest rate!
LLPAs are mandatory surcharges based strictly on credit scores. They are additional fees paid to Fannie Mae or Freddie Mac, not your mortgage professional. Analysts suggest that imposing these “penalties” is a blatant effort to recoup – and to help lessen further losses – on foreclosures. The surcharge could mean thousands of dollars for borrowers who do not monitor and maintain a good credit rating.
If you're thinking about buying, selling, or refinancing a home, you have to be credit ready. Give us a call today for a free credit consultation. We'll pull your credit and see where you stand. Remember, effective credit repair, if necessary, could take up to 3-6 months, so act now and be credit ready in no time.
There is much give and take involved in negotiating a property purchase. That's why it's important to have a checklist of what you want to get out of the deal as a buyer. Bear in mind, the home must be appraised and the lender will be looking at the fair market value on a given property. Since property values fluctuate, your Real Estate Agent should do a comparative market analysis so you are aware of what the trends are for the area in which you are shopping. This will give you an idea as to whether the seller's asking price is realistic. You will also want to know how long the property has been on the market, and if any price reductions have occurred during that time.
Make sure your Real Estate Agent is on the same page with you so he/she is able to represent you properly. You also want to know that you are working with an agent that is experienced in representing the buyer. Not all agents have the ability to provide strong representation for both a buyer and a seller. If you have not yet selected a Real Estate Agent to represent you, my team and I can provide you with contacts that have a proven track record of success with our clientele.
Remember a good deal is mutually beneficial.
The seller will also have a wish list of what they want out of the negotiation. Listen attentively to determine what their hot buttons are. You can use this information to leverage what you want out of the deal at some point along the way.
Find out if the seller has a deadline. Perhaps they have already purchased their new home, or have to relocate because of a commitment to a new employer. Find out what the seller's current mortgage balance is and use this to your advantage.
On the other hand, if the seller wants to move because they can't manage upkeep on the home, or don't want to invest in repairs, these problems will be passed on to you. If you are prepared to go into a deal that involves a fixer-upper, there is an FHA financing program designed to provide funds for both purchase and repair. My team and I can provide you with more information on FHA loan programs and secondary financing.
You would also want to know if the seller is planning this move because there are problems in the neighborhood. Take a walking tour of the area and ask the residents what the neighborhood is like. You can also ask the local police department about the crime rate, or check the local newspaper for crime listings. Don't be afraid to ask questions.
When the seller is intent on getting their way on a certain point, make sure you are getting something in return. Typically the built-in amenities such as the dishwasher and garbage disposal will stay with the home. You can negotiate other items in exchange for something that ranks high on the seller's wish list. Be prepared to split the difference so everyone involved is satisfied with the negotiation. A win-win situation for both the buyer and the seller is critical to a smooth close.
Keep it simple and be direct, but above all, know that my team and I are here to assist you.
