New Appraisal Changes Effective September 1st May Impact Lending Practices

In an attempt to make appraisals more uniform and accurate new changes and additions have recently gone into place effective first of September.  These changes mean that the timeframe in which a loan closes could be impacted as more detail will be required on these reports.  This may in fact be one step in the right direction in a real estate world where comparable properties can be scarce at best depending on the market you're in.  The new standards will require the below "ratings" to be assigned to the properties used, including the subject.  In my opinion, this will "fix" the problem of appraisers using "comps" that may be similar in size and location but don't always accurately take into account the overall quality of construction, condtion and upgrades to the properties involved.  How do you think these changes will effect lending? I am especially interested in hearing those comments from those of you directly involved in the industry...lenders, agents and appraisers.  Please note, the information provided below is courtesy of an information email sent to me by Luann Davis of Starkey Mortgage.



Rating Description



C1 The improvements have been very recently constructed and have not previously been occupied. The entire structure and all components are new and the dwelling has no physical depreciation.


Note: Newly constructed improvements that feature recycled materials and/or components can be considered new dwelling provided that the dwelling is placed on a 100% new foundation and the recycled materials and the recycled components have been rehabilitated/re-manufactured into like-new condition. Recently constructed improvements that have not been previously occupied are not considered "new" if they have any significant physical depreciation (newly constructed dwellings that have been vacant for an extended period of time without adequate maintenance or upkeep)


C2 The improvements feature no deferred maintenance, little or no physical depreciation, and require no repairs. Virtually all building components are new or have been recently repaired, refinished, or rehabilitated. All outdated components and finishes have been updated and/or replaced with components that meet current standards. Dwellings in this category either are almost new or have been recently completely renovated and are similar in condition to new construction.


C3 The improvements are well-maintained and feature limited physical depreciation due to normal wear and tear. Some components, but not every major building component, may be updated or recently rehabilitated. The structure has been well-maintained.


C4 The improvements feature some minor deferred maintenance and physical deterioration due to normal wear and tear. The dwelling has been adequately maintained and requires only minimal repairs to building components/mechanical systems and cosmetic repairs. All major building components have been adequately maintained and are functionally adequate.


C5 The improvements feature obvious deferred maintenance and are in need of some significant repairs. Some building components need repairs, rehabilitation, or updating. The functional utility and overall livability is somewhat diminished due to condition, but the dwelling remains usable and functional as a residence.


C6 The improvements have substantial damage or deferred maintenance with deficiencies or defects that are severe enough to affect the safety, soundness, or structural integrity of the improvements. The improvements are in need of substantial repairs and rehabilitation, including many or most major components.






Rating Description


Q1 Dwellings with this quality rating are usually unique structures that are individually designed by an architect for a specified user. Such residences typically are constructed from detailed architectural plans and specifications and feature an exceptionally high level of workmanship and exceptionally high-grade materials throughout the interior and exterior of the structure. The design features exceptionally high-quality exterior refinement and ornamentation, and exceptionally high-quality interior refinements. The workmanship, materials, and finishes throughout the dwelling are of exceptionally high quality.


Q2 Dwellings with this quality rating are often custom designed for construction on an individual property owner's site. However, dwellings in this quality grade are also found in high-quality tract developments featuring residences constructed from individual plans or from highly modified or upgraded plans. The design features detailed, high-quality exterior ornamentation, high-quality interior refinements, and detail. The workmanship, materials, and finishes throughout the dwelling are generally of high or very high quality.


Q3 Dwellings with this quality rating are residences of higher quality buildings from individual or readily available designer plans in above-standard residential tract developments or on an individual property owner's site. The design includes significant exterior ornamentation and interior that are well finished. The workmanship exceeds acceptable standards and many materials and finishes throughout the dwelling have been upgraded from "stock" standards.


Q4 Dwelling with this quality rating meet or exceed the requirements of applicable building codes. Standard or modified standard building plans are utilized and the design includes adequate fenestration and some exterior ornamentation and interior refinements. Materials, workmanship, finish, and equipment are of stock or builder grade and may feature some upgrades.


Q5 Dwellings with this quality rating feature economy of construction and basic functionality as main considerations. Such dwellings feature a plain design using readily available or basic floor plans featuring minimal fenestration* and basic finishes with minimal exterior ornamentation and limited interior detail. These dwellings meet minimum building codes and are constructed with inexpensive stock materials with limited refinements and upgrades.


*Fenestration – the design and disposition of windows and other exterior openings of a building.


Q6 Dwelling with this quality rating are of basic quality and lower cost; some may not be suitable for year-round occupancy. Such dwellings are often built with simple plans or without plans often utilizing the lowest quality building materials. Such dwellings are often built or expanded by persons who are professionally unskilled or possess only minimal construction skills. Electrical, plumbing, and other mechanical systems and equipment may be minimal or nonexistent. Older dwellings may feature one or more substandard or nonconforming additions to the original structure.

Conventional Wisdom--FHA vs. Conventional

In recent history, buyers with little down payment and high credit scores still leaned towards FHA loans for their good rates and low down payment requirements.  Currently for as little as 3.5% down, which can still be a gift, a decent FHA loan can be obtained. 

In mid-April, FHA will adjust their up front funding fee which may in fact turn the tables for buyers looking for those low down payment loans.  It looks like now using conventional financing can save buyers substantial amounts of money at the onset and years down the road.

With new conventional programs, there is no upfront premium, unlike FHA which requires 1% upfront either added to the closing costs or financed into the loan.

On these conventional products there will be lower monthly private mortgage insurance costs than with FHA which means realized savings month over month and year over year.

On some of the conventional products you can get in with as little as 3% down as opposed to FHA's required 3.5%.

If the buyer has the ability to put a little more down with some of these products and can bring a down payment of 5% as opposed to FHA's required 3.5% then in 3 years the buyer can save approximately--

$2116 in monthly mortgage payments
$4005 in mortgage insurance
and will have $5632 more in equity.

When the FHA pricing changes in April, these numbers above will adjust to
$3885 in monthly mortgage savings
$5774 in mortgage insurance costs and this is in just the first three years!  Not something to sneeze at!

For more information and details please give me a call or email me so that our team can put you in touch with a mortgage professional who can assess your situation and determine which loan is right for you!

Brooke

Obtaining a Mortgage...Is It Just Too Much Work?

According to a survey recently published and reported on by the Wall Street Journal (link at bottom of post), obtaining a mortgage is considered the most difficult part of purchasing a home. 

As someone who works day in and out with lenders, buyers and sellers trying to navigate the home-buying process, I can certainly vouch for that sentiment.  Not only do home buyers have to dredge up tons of paperwork that they may have never laid hands on (tax returns, paper pay stubs, divorce or separation agreements, child support documentation, etc.) but they are also asked to find other obscure items or conduct tests on the home being purchased at the last minute.  This would seem to be an issue for the individual mortgage brokers to know what items are needed for a particular loan or buyer, but with guidelines changing and new regulations being handed down from Fannie and Freddie on sometimes a WEEKLY basis, the gauntlet to obtain financing may seem downright impossible.

For example, the basic requirements to submit for a loan are certainly ones that  you can see as necessary in order to verify income, employment, assets, and the like.  There should not be any issue with a buyer being able to produce their last two year tax returns or bank statements.  However, some buyers, since this is not an everyday process, are confused as to where these documents are found and with the advent of online banking and tax filing, paper copies are becoming less the norm.  This is a great example of how critical it is to have an experienced local lender with a trusted company to guide you through the process.  Even the best of these folks are going to be blind-sided every now and then by something like a road maintenance agreement that was never recorded or a separation paper that was never filed or notarized, but these folks keep their cool, keep everyone informed and keep the loan trucking to a successful close.

Lending is changing everyday and it is up to an experienced team of lenders and agents who are up to date on the climate of the market to guide buyers through the challenges.  Please call Brooke Cashion and Associates for a list of lenders that we recommend because they are market relevant, professional and can close the transaction.  Remember..."When Details Matter....Experience Counts!"

http://blogs.wsj.com/developments/2011/02/08/survey-mortgage-process-has-become-too-confusing/

Which comes first? The chicken or the egg?

Just ran into a frustrating situation this past week on an appraisal where the value came in significantly lower than the contracted purchase price and tax value. Where as I have been preaching for years that tax value has little if anything to do with actual market value, I would hate to think that a seller/owner would pay close to 50k more than the home's "market" value as determined by one individual, in this case the appraiser, who is following a governmental set of guidelines. I say this because I in no way believe that the appraisal was the accurate indicator of the home's value. Real Estate 101 tells us that the value of a home in a given market is determined by the price that the buyer and seller can agree to on a particular day. It takes into account what is on the market during that period of time, the price the competition is available for and the overall thought that the buyer will choose what is best suited for them at the best price.

Well, how things have changed. As we are in the midst of "recovery" and the real estate market is taking a deep breathe as we enter what has been historically a slow period, it is now no longer good enough to bring said buyer and and seller together on price and terms, you now battle an unknown set of rules. Those rules are the ones determined by the lender or quasi-governmental entities such as Fannie Mae and Freddie Mac, as they throw down regulations depending on the loan program that the buyer is using, that will dictate which set of criteria will be used to determine the value of the home.

Buyers and sellers are spending unheard of amounts of time and money to find the "real" value of their home in a historically unique marketplace. As they are trying to discover and negotiate this value, the lack of comparable sales, due to the depressed market is being used as an excuse as to why values are not there. This is happening in markets that are considered to be somewhat "stable". Meaning that nothing has been sold in the past several years because nothing has been on the market, because folks actually LIKE to live there! That usually means high demand and a relatively safe investment. Banks say NOT SO FAST! No comps, no values or they will compare and adjust the subject home with homes of varying age, quality of construction and design...for instance comparing a one level home to a two story with a basement.

The moral of the story is to
1-be aware of these risks as you are searching for homes or trying to sell your home
2-have comparable homes in your back pocket should an appraiser ask for assistance in establishing value
3-use more traditional forms of lending when possible, such as conventional loans with lower LTVs that have fewer governmental strings attached
4-don't buy anything unique (just kidding, but it does present challenges on on Fannie Mae/Freddie Mac backed loans)

Have anymore questions? Don't forget to give me a call or post if you have had or heard of a similar experience.