Tips on Getting a Mortgage
By Mike Hurney
Part 4 Loan to Value – The Appraisal (value)
Of all the bases you need to cover when getting your Purchase mortgage or Refinancing, The Appraisal seems to have Buyers/Borrowers under the most misconceptions.
“OUR HOUSE IS WORTH ALL OF $XX.XX!!”
Containing many biases, the lending process usually begins with comments from Borrowers like “The house down the street sold for X and it’s not nearly as nice as our home, so ours’ should be worth twice that!”
Or “We’ve cleaned it up, so it’s got to be worth much more.”
“Mike, tell them what we need, you’re in the business they’ll listen to you.”
or “I’ll show them the last Appraisal we have from when we purchased this home 4 years ago, then they won’t have to do any work!”
WHAT IT TAKES TO BE AN APPRAISER
First you’d be impressed with what it takes to become a Licensed Appraiser.
A fair amount of Courses, 150 hours to start, then Application fee $338. Exam fee $100, License fee 2 years $390 and 2000 hours of Verifiable Appraisal Experience in not less than 24 months and of course 28 hours C!EUs to renew their 2 year license. That’s why they seem to know what they’re doing.
HOW IT WORKS
For your Appraisal, recent “SOLDS” are used that are within a half mile radius and the last three months which are Comparable to your home.
Beyond that radius and time frame, it’s considered to be Real Estate “Ancient History” and not relevant. When an Appraiser has to go beyond .5 miles and 3 months they have to document why.
Incidentally the Barney Frank-Dodd Act prohibited Appraisers and Mortgage Brokers from communicating about a particular loan. Most often a request from the Lender is sent to a “pool” of Appraisers so it’s unknown who’ll actually perform the Appraisal. Should they communicate and I believe the Frank/Dodd Act was intended to prevent collusion and “value-fixing” which they mistakenly believe was the cause of the Real Estate crash. Anyway communicating results in a Loss of both Appraisal and Mortgage licenses, a fine of $1000.00 and a year in jail for each.
So the “house down the street, that just sold” has to be within that 1/2 mile and the last 3 months. Now the technical details: Similar number of Total rooms, Bedrooms, Baths and Square footage of living space and lot size. Next proximity to transportation, services, businesses and use of streets (e.g. Busy, Dead end), Finally the condition of the house with many pictures. So there usually is not very much “seat of the pants” estimating.
HAVE SOME INPUT
Can you influence an Appraisal? Many folks think so. It’s human nature. Quick analogy – When you take your car to a mechanic if it’s been well kept, detailed and maintained you’ll have one level of care and respect. If you’re car is towed in, still smoking from the leaking oil on the manifold, hasn’t been washed in months, filled with trash and junk, floor matts worn through you get a different level of care from that same mechanic.
Same with houses; If there’s Deferred maintenance, Trash, Junk, Pet odors and Waste left in collection boxes, you may not have the same scrutiny for value that an immaculate, pleasantly scented, no junk or trash in the house without deferred maintenance, would receive.
No offense to pets meant. On Broker Open House day I may visit 10 houses. One may have 4 dogs (more than 4 requires a kennel license) and I can’t detect it. Another could have the tiniest kitten and I’m gagging on the ammonia like, stench. I know it’s the owners, sometimes they’re used to it or immune?
Whether it’s a Purchase or Refinance this is probably the biggest transaction of your life or close to it. It’s in your best interest$ to clean, deodorize, remove all junk and take care of the deferred maintenance for your Appraisal.
TRUE VALUE OF YOUR APPRAISAL
Where I go above and beyond:
When I’m working on a potential Loan, I’ll offer the Refinancer or Buyer a copy of their City/Towns Tax Assessment on the Subject Property, which is where an Appraiser would Start. My next service is to provide the Comparable Recent Sales from the Multiple Listing Service. You like Input? You like Control? This is it! When a Borrower takes the time to review their Assessment and those Sales, They are now understanding the process and can intelligently decide whether to proceed or wait. There is no sense in paying for an Appraisal that’s not going anywhere because the Value isn’t close enough for the Fannie Mae loan guidelines. Finally Borrowers can present their Assessment and SOLDS to the Appraiser and, matter of factly, let them know what you’re trying to do.
The Appraiser will briefly explain their role, limitations and how they cannot be influenced by anything but the facts. (but they’re human, so remember that mechanic and the car)!
PS In the work beyond Mortgages and Appraisals I’ve found the Appraisal to be a tremendous resource and literally a “ROADMAP TO SUCCESS“! If you look at the properties they’ve contrasted your home with, especially the more expensive houses you should be able to determine which amenities increase value. For instance a ceramic tile basement floor vs a finished attic is obvious. However the fact that the basement is below grade disqualifies it from being counted as living space. Attic with clearances over 6’4” can be counted.
You could work with someone who’ll spend time with you, reviewing the process while putting your mortgage together. And by the way, I’ll be glad to. My email is [email protected] and my cell is 781-405-1845 Or just join us at a meeting.
Good luck investing!
Mike is the Director of www.MassRealEstate.net and is a Licensed Loan Officer in Massachusetts NMLS #43341 Copyright © 2013 Mike Hurney. All Rights Reserved.
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