Let’s be real about one thing when it comes to buying your home – it’s an emotional purchase as much as it is financial. There’s no way you can quantify the emotional value you place on your home, but to determine its financial value, you need an appraisal. An appraiser discovers, lists, and values property, a vital role in the housing market. The art of the appraisal is complex and demanding, and has been complicated even further by recent shifts in guidelines and legislation that redefined the relationship between lenders and appraisers. Below are some useful facts you should know about the appraisal process.

Overview

In the mortgage process, an appraiser works with the lender, determining the value of the subject property. Based on the appraisal, the lender can determine if the collateral of the building is worth the risk a bank would undertake in granting a mortgage. The size of the loan is based on either the contract price or the appraised value; the lender will use the lower of the two values to determine the loan amount.

The underwriter will use the appraisal as a guide to approving the loan; only after the underwriter has signed off on it has the loan been officially approved.

Appraisal Factors

The appraiser examines a number of factors to determine the appraisal value. Location, as is often noted, has profound impact on a property’s value, but so does the reputation of a building itself—if people want to live in a particular “green” building, or a building with other amenities or assessments, the value of that property will be higher. The demand for the building may also be influenced by the lending and development history of the property.

Not all properties are appraised in the same way. For example, a single-family home and a condo on the same street in the same neighborhood will be appraised by weighing the distinctive features of each building. The current condition of a condo is an especially important factor, as a condo may not be expanded or improved in the same way that a single-family home can. The floor location in a high-rise building project (the “view”) can differentiate the values of units in the same building.

The Lender/Appraiser Relationship

In May of 2009, the Home Valuation Code of Conduct was enacted to combat the practice of lenders placing pressure on appraisers, as well as other problems in the valuation system that contributed to the recent economic collapse. Appraisers and loan officers no longer have direct contact; their working relationships are managed by a third party whose primary responsibility is to ensure all parties are following the Code.

Fannie Mae and Freddie Mac

Fannie Mae (FNMA) and Freddie Mac (FHLMC) are the two largest purchasers of mortgages on the secondary market. These two organizations have specific guidelines for property mortgages that they purchase; a property that meets these guidelines is called “warrantable.” Some of these guidelines involve the number of investors, the number of pre-sold units in the project, or how much commercial space may be sold in the building. A “non-warrantable” building that fails to meet Fannie Mae or Freddie Mac requirements is much harder to lend for, since a large part of the financial process involves selling the mortgage to the secondary market.

Preparing for an Appraisal

Although there are very few things you can do right before an appraisal that will significantly alter the value of your home, it’s a good idea to make the living area clean and presentable, as if hosting for guests. A home’s value is based in part on appeal—the perception that, when the home looks it best, buyers would be very interested in living there.

It might also be nice to place some milk and cookies on the counter for the appraiser. It may not affect their judgment of the property, but it will bring a smile to their face!

For more information on how you can estimate the value of your home, please contact your PERL Mortgage Advisor today!

No Comments »

With so much information and opinion to consider, you might be left with more questions than answers when you decide to start shopping for a new home. It is important to have the right team of professionals, such as a realtor, mortgage professional, an attorney, and a home inspector, helping you make the wise decisions as well as creating an enjoyable process all at the same time.  A realtor can help you through the process, but how do you find the real estate agent who will best work towards your particular needs and objectives?

Here are some criteria to consider as you look for your ideal agent.

Regional Expertise
If you have a specific area in mind, it’s important to consider a realtor’s knowledge of that area. How well does the realtor know the neighborhood where you intend to move? Has the realtor helped place a significant number of previous clients in homes in this area? Does the realtor live in the area themselves? A realtor with extensive and detailed knowledge of the region will be ready to answer any and all questions you have not only about the property but the surroundings, which will directly affect the value and appeal of a home.

Building Expertise
Some realtors may be particularly knowledgeable about the finer points of construction and development, which would make them an invaluable resource when you view a building you’re interested in buying. Such a realtor can let you know about the strengths and weaknesses of a new construction project or a building that’s been standing for decades, and they can explain the structural differences between a townhome, a condominium, or a single-family house. Some agents are developers themselves, and they’ll have a keen eye for these details.

Advocacy Experience
Not all realtors have the same styles or interests in the market. Some agents have much more experience helping a homeowner sell their home than they do helping a new buyer find the home they desire, and vice versa. You should always consider the role the realtor has played in their past real estate transactions, and who they have most often been an advocate for, when deciding if they might be right for your needs.

Additionally, you may want to consider signing a buyer agreement with the agent you choose. A buyer agreement is a contract that expresses in clear language what the relationship is between the buyer and the agent, including the duration of representation, the size of the commission, and other rights and obligations to which both parties are beholden. The agreement protects the buyer by binding the realtor to a fiduciary and ethical duty to represent the buyer’s best interest in any transaction. Having a buyer agreement with your agent encourages the agent to work harder towards your objectives exclusively.

Testimonials and Associations
One of the easiest ways to find out more about a realtor is to talk to people who have had dealings with that realtor before. Ask family, friends, and trusted co-workers for recommendations, and research individual realtors online at such consumer-response websites as Yelp and Zillow. If the realtor has a long-standing association with a real estate company, find out how past clients would describe their relationship with the company. History and reputation are often excellent indicators of how a realtor will work with you.

The working relationship you have with your realtor will be crucial to your homebuying experience. Invest the effort to find the real estate agent best for you, and that agent will invest the effort to find you the home you’ve always wanted.

Go get ‘em!

No Comments »

The mortgage rate you secured for your purchase or refinance may have been the best available at the time of your purchase or refinance closing. But as interest rates continue to fluctuate, you should be prepared to refinance your mortgage in order to capitalize on an even lower rate. We’ve all been hearing how low rates have been in the recent past. Now should be the time to ask yourself if you have the right financing solutions for your home.

Here are some things you’ll need to do before you can lock in a low interest rate:

Contact your mortgage adviser.
They’ll pull your credit, gather some initial information and evaluate your current assets, income and debt. If you or your mortgage adviser find any red flags, you can discuss immediate solutions so that when rates go down and you apply for your loan, you’ll be good to go.

Assess the required reserves.
These days, lenders often require 3-6 months of reserves in order to secure a new loan. Reserves are often referred to as PITI: principal, interest, tax and insurance. Your assets are funds in your bank and investments accounts.

Take the appraisal into account.
Even though you’re not purchasing, your property will need to be appraised before a refi can be approved, because the new appraised value determines the loan to value (LTV) ratio.

Gather your documentation.
First, gather your documentation. Even though the refinance process typically doesn’t take as long as a purchase, it involves the same moving parts. And you want to make sure that a missing bank statement doesn’t inhibit your ability to close on time!

Even though you won’t need a purchase agreement, you’ll need to gather recent paystubs, W-2’s, bank and asset statements, and make a copy of your driver’s license.

Understand the process.
As always, you’ll need to complete the loan application process. Loan applications can be done via e-mail, over the phone or in-person.

Next, you’ll lock in your interest rate (typically for 30 days).

After the application, your information will be sent to an in-house processor to evaluate the accuracy and completion of your file.

Next, an underwriter will evaluate the prospective loan and your ability to repay the lien. The underwriter will assess the appraisal and other loan components.

After your loan is approved, you’ll move onto closing. Remember, bring your lucky pen and some ice for your hand!

Following the closing, you’ll receive a new title and possibly a new lender.

A few other tidbits:

• Your new lender will require that you open a new tax escrow account.
• Don’t forget about closing costs.
• If you live in Chicago, you won’t have to pay the transfer stamp tax on a refinance
• You don’t need to have an attorney or a home inspection for a refi (though you’re welcome to use one!)
• If there’s a pending lawsuit in the condo association, you cannot refi your loan.
• If there’s a foreclosure in your building, that may not necessarily prevent you from being able to refinance, but know that a foreclosure in your building may adversely affect your appraisal.

Finally, it’s important to note that no two rates are the same and oftentimes an interest rate at 10 am is different at 4 pm – even though it’s from the same loan program from the same lender.

Remember, your co-worker’s rate may not be not your rate!

No Comments »