When buying a home, there are certain steps a buyer should go through before the home sale is official. First the buyer makes the offer, then the offer is accepted.
Next the buyer schedules the inspection and home appraisal. Finally, everyone is ready for closing.
It’s easy to overlook the impact of some of these steps, but when it comes to a mortgage, the home appraisal is actually quite important. Banks want to see that they are lending money for an investment that is worthwhile, so that appraisal is a crucial step to getting financing. Here is what buyers need to know about how the appraisal could affect their mortgages.
Understanding The Home Appraisal Process
The home appraisal gives a home valuation expert the chance to evaluate the home a buyer’s considering to determine its market value. Home appraisers are highly trained, state-licensed professionals that know how to evaluate homes and assign value to them.
The appraiser will use various approaches to determine the final appraised value. The appraisal typically happens after an offer on the home was approved but before the lender loans the money.
The Appraisal And Mortgage Approval
The appraisal is one factor that a mortgage lender considers when deciding whether or not to approve a final loan request. Even if a borrower had preapproval, a low appraisal could cause the mortgage to fall through.
Why is this? A lender only wants to lend enough to cover what the home’s actual value, and if the appraisal comes in lower than what the borrower is asking for, the lender can deny the loan.
If the lender does not deny the loan completely, they may refuse to lend more than the home’s value. In order to buy the home at the agreed price, the buyer may need to come up with the difference in cash at closing.
What Can Buyers Do If The Appraisal Is Low?
If an appraisal comes in low on the home someone wishes to buy, the buyer shouldn’t panic. It is possible to get a new appraisal at a higher value.
First, consider the condition of the home. Did the seller let some things fall into disrepair? If the seller fixes those items, a new appraisal may be higher.
Does the home look rundown or cluttered? This shouldn’t affect the appraisal, but it can sometimes cause the appraiser to trend lower. Sometimes, simply asking for a second opinion might get a slightly different appraised value. That said, if the appraisal is low, make sure to evaluate the purchase price. Is it in line with current market conditions and the overall condition of the home?
If the answer to that question is no, then the offer may be too much for the home. The appraisal, in this case, gives the buyer the opportunity to reevaluate the purchase decision.
When it comes to mortgage approval, the appraisal is one of the critical steps in the process. If a buyer has shopped wisely, the home should pass with flying colors, and soon the home sale process will be over. As always, your trusted mortgage professional is the best resource for appraisal information in your local market.
Buying a property out of foreclosure can be a very smart move, financially. But it can also be complicated, expensive, and stressful.
Here are 5 things to keep in mind before you take a first step in that direction:
Cash Or Preapproval Required
Buying a house that has been returned to the lender through foreclosure means dealing with bureaucracy rather than with a motivated seller. Large lenders are notorious for taking their time to approve a contract, even if the offer is for the exact amount specified.
Then there’s the paperwork, which can seem endless. Most lenders require that prospective buyers have cash on hand, or a pre-authorized loan in place in order to even submit an offer.
There’s Little Room For Negotiation
Although in certain circumstances there may be an opportunity for some discussion about the price, that is not the norm in a foreclosure. The minimum price is usually written in stone, even during an on-site property auction, and the only direction is up! The days of buying foreclosures for a song are long past, if indeed they ever really existed.
As-Is Condition Means Just That
Some buyers specialize in foreclosures while other investors run the other direction. There are pros and cons, of course, to every transaction. Sage advice is to always pay the fee for a property inspection on a foreclosed property, even if you have experience. A third-party evaluation is especially valuable if the home has been vacant for an extended period of time, if the utilities have been turned off, or if there are extensive visible defects.
Foreclosures can be like icebergs: What you see may be nothing compared to what lies below the surface. Also, with the findings in writing, always confirm that your loan commitment and insurance quotes will be honored in spite of the existing condition.
The Need For An Experienced REALTOR
Navigating the landscape of property foreclosures is a specialty field, and caution is the name of the game. As a prospective buyer of a pre-foreclosure, a short-sale or a foreclosed home, an experienced REALTOR is your best resource. A real estate professional will help you deal with all timelines and requirements, and has the knowledge and expertise to recommend lenders, inspectors, insurance agents and contractors to help you make a decision.
Always Consider Future Value
Although the initial price might be right, there are additional variables at play in every real estate transaction. What can you expect in terms of appreciation over the short term? What is the long-term outlook for the neighborhood? Will needed repairs and improvements add to the home’s value, or simply bring its condition up to standard? Do you plan to live in the home, or is it strictly for resale?
Your trusted real estate professional is the best resource to help you thoroughly evaluate all the information about every foreclosure.
Although 2017 was a difficult year for some coastal communities, mortgage delinquencies continue to decline as the economy ramps up.
Although hurricanes devastated properties in Florida, the Panhandle and south Texas, a thriving national economy continues to buoy American homeownership, according to a CoreLogic Loan Performance Insights Report.
Mortgage Delinquencies Decline Despite Severe Weather
“Last year’s hurricanes continue to have an effect on loan performance in affected markets, showing up in statewide data. Serious delinquency rates in February were 50 percent higher than in August 2017 in Texas, and nearly double in Florida, even though the wind and flood damage was primarily in coastal markets,” Frank Nothaft, chief economist for CoreLogic, reportedly stated in a press release.
While the catastrophes such as hurricanes Irma and Harvey profoundly impacted coastal communities and put an onerous drag on delinquency rates, national numbers continue to trend in a positive fashion.
During February of 2018, only about 4.8 percent of U.S. mortgages entered some stage of delinquency. That was a surprising 0.2 decline from the previous year. In turn, foreclosure inventory rates declined from 0.8 to 0.6 percent and foreclosure inventory has enjoyed its lowest levels in approximately 10 years.
“At the same time, our CoreLogic U.S. Home Price Index showed a 6.4 percent increase in home-price appreciation for the 12 months, which ended in February 2018. These factors bode well for the fortunes of both homeowners and mortgage servicers,” economist Nothaft reportedly stated.
GDP Points To Economic Uptick
One of the driving forces behind a thriving real estate market is the growth or slippage of the Gross Domestic Product (GDP).
According to data released by the Bureau of Economic Analysis, the country appears to be on a economic tear with the 2017 and early 2018 numbers far outpacing 2016. The quarterly reports over the last 12 months showed the GDP topping 3 percent twice, 2.9 once and we’re waiting for definitive markers for first-quarter 2018, but they appear strong.
It’s reasonably safe to say that economic prosperity generally has a positive effect on homeownership because it often reflects growing corporate profits, potentially rising wages, job security and low unemployment.
The unemployment rate has widely been reported as hitting 17-year lows and African-American and Hispanic unemployment are said to be at historic lows. While these measures may not have a direct and discernable correlation to everyday people being able to afford their mortgages, they do point to overall economic prosperity. Couple these economic trends with expected federal tax savings and foreclosure rates could continue to drop.
Although no one can make assurances about the future of the economy, these are positive indicators for people thinking about purchasing a home.