Seward Real Estate Blog

Appraisal Quality doesn't cost, it saves.

There's an old adage that states "you get what you pay for", and nothing could be more poignant and true than when it comes to a home Real Estate Appraisal. A poorly prepared, poor quality, and minimal effort appraisal costs everyone in the long run, including the originating Loan Officer/Mortgage Broker, the Appraisal Reviewers, the Bank Underwriters, and finally the borrower/client in the end.

There is a disturbing new trend in the industry towards faster, cheaper, and significantly limited and inaccurate appraisal reports in an effort to save a buck. This frequently back-fires when the loan deal falls through because the appraisal is rejected.

A poorly prepared appraisal and report will be quickly rejected by the initial reviewers or underwriters, which drives cost and delays the overall loan process. In some instances, Bank Underwriters are forced to require a special review appraisal be performed, or may even insist on a complete re-appraisal of the property again. Depending upon the review results, they may very well reject the entire loan package based on missing or inaccurate information. If the property was overvalued, many times the borrower/client is the one that ultimately loses in the end since the qualifying value could not be met, so they have paid for a worthless appraisal.

As part of our ongoing appraisal business, we also perform numerous appraisal reviews each year, and find that many of the recent appraisal reports are overvalued due to inaccuracy, or in some instances, out and out fraud, and all of these properties must be reappraised at a considerable cost. These reviews then go back to the underwriters, who must then face the loan cancellation dilemma.

Time to take a new look at FHA Loans

Federal Housing Authority (FHA) loans may actually become popular once again! Based upon the latest economic stimulus package signed into law, refinancing or buying a home with an FHA Loan may now make sense in California. This is particularly the case in Santa Barbara County, where the FHA loan value limit formula has raised significantly due to our higher Median Price levels.

The Federal Housing Authority, Fannie Mae, and Freddie Mac now have the limits on the size of mortgages they can finance or buy increased up to $729,750. Even higher limits are now available for Multi-Family Units.

With this new reform package, the Federal Housing Administration is now more relevant in today’s housing and mortgage lending industry since they are expanding the agency, loosening underwriting standards, and most importantly have raised the original restrictive loan limits here in California and especially Santa Barbara County.

FHA insured loans may also be an option for borrowers who may be unable to make payments on their current Adjustable Rate Mortgages when their ARM interest rates reset.

Even if your credit is less than perfect, an FHA loan might still make sense since you may qualify despite any previous financial problems. With the new guidelines, FICO scores do not apply, and there are relaxed rules for people who have had a bankruptcy discharge or Foreclosure after 2-years. The FHA rules are loosened, all at a time when the conventional /Jumbo Loan requirements have become far more stringent in the last several months.

The FHA Rates & Terms are far more competitive than the current Jumbo Loans, with rates typically a full 1 - 1.5 percent lower. The typical FHA Loan has little or no adjustment to the interest rate, and the Mortgage insurance is funded right into the loan which is far less than Private Mortgage Insurance (PMI) premiums. Borrowers can also finance up to 97% of the purchase price, and if combined with other types of loans, your down payment may actually be zero. The allowable debt-ratios are also higher than the strict debt-ratio limits required for today’s conventional loans.

A recent HUD announcement states that the increase in loan limits will enable more working families to become homeowners and will help the FHA mortgage insurance program keep pace with the robust housing market. The FHA estimates that it may be able to help over 200,000 borrowers who are facing possible foreclosure with the new higher loan limits coupled with the loosened underwriting standards.

It might be time to reconsider the more affordable FHA-backed mortgages, but don’t delay since this is only a temporary increase in the loan limits, and it is scheduled by law to end in 2009.

We have fully approved HUD / FHA Roster Appraisers that were tested under the original stringent FHA guidelines/standards. We understand all the FHA requirements, and can help streamline the FHA appraisal and loan underwriting approval process.

Choosing the Right Mortgage

There are many unique loan products available to borrower’s today, but just which option is best for you? The following is a brief description of just a few of the most popular loan products that are available to borrowers:

Federal Housing Authority (FHA) Loan

FHA loans are fully Government backed and insured, and were once very popular. Based upon the new economic stimulus package recently signed into law by the President, refinancing or buying a home with an FHA Loan may now make more sense here in California. This is particularly the case in Santa Barbara County, where the FHA loan value limit formula was raised to $729,750 based upon our higher Median Price. FHA Loans have relaxed credit and debt ratio standards, and you can obtain up to 100% financing with a combination of loans. The FHA rules are loosened, even though conventional /Jumbo Loan requirements have become far more stringent over the last several months. The FHA Rates & Terms are also far more competitive than the current Jumbo Loans, with rates typically a full 1 - 1.5 percent lower. This interest rate spread can save a typical borrower thousands of dollars each year. You may want to consider the more affordable FHA-backed mortgages quickly though, since the higher loan limit is scheduled to end in 2009.

Reverse Mortgages

The AARP definition of a "reverse" mortgage is a loan against your home that you do not have to pay back for as long as you live there. With a reverse mortgage, you can turn the value of your home into cash without having to move or to repay the loan each month. The cash you get from a reverse mortgage can be paid to you in several ways:

• all at once, in a single lump sum of cash;
• as a regular monthly cash advance;
• as a "credit line" account that lets you decide when and how much of your available cash is paid to you; or
• as a combination of these payment methods.

No matter how this loan is paid out to you, you typically don't have to pay anything back until you die, sell your home, or permanently move out of your home. To be eligible for most reverse mortgages, you must own your home and be 62 years of age or older.

Reverse Mortgages are becoming increasingly popular, and based upon the age limit are primarily suited for retired seniors.

Real Estate Equity Exchange Loans

Real Estate Equity Exchange provides you with money today that you can keep for up to fifty years without interest charges or monthly payments. In exchange, you agree to give the lender a right to a portion of the future value of your home. The company that founded this concept is Rex & Co., a Real Estate Equity Exchange Company. They provide a specialized REX Agreement, which is a real estate purchase agreement. REX & Co. pays the homeowner cash up to 15% of the value of the home for the right to share in an agreed upon percentage of the future increase or decrease in value of the home. If the future value of the home increases, REX & Co. will share in a portion of the gain. Unlike a bank, if the home declines in value, REX & Co. will share in the loss. The term of the REX Agreement is determined by the homeowner and typically lasts until the sale of the property, or 50 years, whichever occurs first. The cash a homeowner receives from REX & Co. can be used for any purpose. Because a REX Agreement is not debt, it carries no interest expense and does not require any monthly payments. You could save thousands of dollars in interest charges compared to a standard mortgage loan, home equity loan or credit card debt with this type of loan.

Mortgage Refinance

Many Mortgage Refinance options are available for you to do debt consolidation or accessing cash from equity that may have built up in your home. Refinance loans can be used to help with many personal financial situations such as reducing monthly payments, home improvements, college tuition and more.

Home Equity Loans

Home Equity Loans and Home Equity Line of Credits (also known as HELOC's or 2nd mortgages) are loans that come fixed or with variable interest rates for getting cash out of available equity in your home. This equity could be used for any purpose such as making home improvements, consolidate debt, vacations, or unexpected expenses.

New Construction Loans

This is typically a short-term loan program that provides funds for the construction phase of a new home. With many lenders, after construction is completed you have the flexibility to select a permanent mortgage solution that best suits your needs to establish permanent financing for the home. Construction home loans provide funding for all construction phases, and payments can also be disbursed directly to the builder saving you time. Many lenders give you the convenience of one loan with the stability of a 15 or 30-year fixed rate program that you lock in before the actual construction begins. These loans allow for a construction phase of up to one year, during which you make interest-only payments at an interest rate slightly higher than your permanent fixed rate.

Conventional Loans

Conventional loans are secured by government sponsored entities or GSEs such as Fannie Mae and Freddie Mac. Conventional loans can be made to purchase or refinance homes with first and second mortgages on single family to four family homes. A conventional loan is basically any kind of lender agreement that is not backed in full by the Veterans Administration or protected by the FHA (the Federal Housing Administration). All told, there are several broad categories of conventional loans. Fixed rate mortgages are simpler in some cases. A home borrower “locks in” at an interest rate, and he or she pays down the principal and interest on the mortgage every month at that rate.

Other so-called conventional loans include conforming loans. Basically, these are arrangements that meet stipulations set forth by Fannie Mae and or Freddie Mac, two very large mortgage trading companies.

While Fannie Mae and Freddie Mac don't actually approve or disapprove of loans, they buy and sell mortgages. Lenders who sign borrowers up with conforming loans may later sell these loans to Fannie Mae or Freddie Mac to get funds for other investments.

Jumbo Loans

Jumbo or Nonconforming loans are instruments which don't meet Fannie Mae or Freddie Mac qualifications, and are also considered a form of conventional loans. Jumbo loans fall outside of Fannie Mae eligibility, but are still considered conventional. A jumbo loan is a loan that's too large to be eligible to be traded by the two main loan purchasers (GSEs). The previous Fannie Mae guidelines for conventional homes put the maximum price for a conventional, conforming loan at just over $415,000 for a single-family arrangement. A larger loan limit has just recently been increased for California. Because jumbo loans are not funded by the government sponsored entities, they usually carry a higher interest rate and some additional underwriting requirements.

Summary

Choosing the right type of mortgage depends on many different factors, and one of the best ways to find the "right" answer is to discuss your finances, your plans and financial prospects, and your preferences with a local mortgage professional.

Average Home Sale Price Increases in Six Counties
MIBOR releases three-month 2008 housing data for central Indiana

INDIANAPOLIS – Average sale price increased in six central Indiana counties from March 2008 through May 2008 compared to the same period last year, according statistics released this month by the Metropolitan Indianapolis Board of REALTORS® (MIBOR).

Boone, Brown, Hendricks, Montgomery, Morgan and Putnam Counties all saw an increase in average sale price during these three months, compared to the same period in 2007. Increases ranged from a 16 percent jump in Brown County to an 8 percent increase in Boone County.

Other key findings:

• Total units sold in central Indiana between March 2008 and May 2008 decreased by 20 percent from the same three-month period last year to 6,831. December 2007-May 2008 units sold decreased 19 percent from December 2006-May 2007, while units sold from May 2007- May 2008 decreased 15 percent from the same period in 2006-2007.
  
• In March - May 2008, total units pended decreased 15 percent from the same period in 2007. The six-month snapshot reflects a 14 percent decrease from December 2007-May 2008 compared to the same period last year. Units pended over the last year have decreased 12 percent from May 2007-May 2008.
  
• Average months of housing supply for the central Indiana area is 9.2 months, compared to 8.9 in 2007 and 8.5 in 2006.
  
• New listings added between March and May 2008 decreased 16 percent from the same period in 2007. December 2007-May 2008 average sale price also decreased 10 percent, and the 12-month comparison shows a 7 percent decrease from the same period in 2006-2007.
  

These statistics are based on data generated by MIBOR on June 19, 2008. Data is updated daily and can be accessed by calling 317-956-5232.