Frustrated Borrowers - Appraisals

Another aspect of the loan process that is causing heartburn for many home owners is the difficulty involved with having a home appraise for as much value as expected. More than ever lenders are concerned about slipping home values. This fear, coupled with a tendency of many loan officers to “push” appraisers for a desired value has Underwriters being extremely scrupulous when reviewing the appraisal that is submitted. In many cases lenders are requiring 3^rd party reviews and certifications to ensure accurate estimations of value.

When waiting for an appraisal on your home, there are few items worth considering:

1. The job of the appraiser is to determine value based upon facts, not opinions.
   

It honestly doesn’t matter much to the appraiser if you have a cluttered garage or even a sink full of dishes. The appraiser is looking for “marketable” features such as granite counter tops, a 3 car garage, completed basements, upgraded travertine showers, etc. Just because you love the vintage art-deco bathroom left from the original owners doesn’t mean that the appraiser can increase the value.

2. Market trends and sales history influence value.
   

An appraiser will compare your home to several similar homes in your neighborhood. Most appraisers are looking for 3-4 homes within a 10 block radius which have sold within the past 90 days. The home across the street that is listed for sale does little to influence the value of your home; rather, the home around the corner that sold two weeks ago is a much more accurate comparable property. If you know that home values are declining in your neighborhood, then it may be unrealistic to expect and appraiser to deliver a value significantly above the value of similar homes which have recently sold.

3. Realtors and Appraisers don’t always agree.
   

I can’t tell you how many times I have heard a homeowner ask: “well, the realtor who stopped by the other night told me my home is worth $350,000, so why is the appraiser saying it is only worth $300,000?” I guess to be honest, the sales value of a home is whatever someone is willing to pay for it, and if your agent can get someone to offer more than the appraisal can support, good for you. Unfortunately, remember that the lender for the buyer of your home will also require an appraisal, and if they show the value to be lower than the sales price you will either have to adjust your price or the buyer will need to make up the difference, which is not very likely. Now, don’t get me wrong, I am not saying that Realtors are not accurate; in fact, most are very fair when they consider values. Sometimes, however, there may be a discrepancy between the two. When that happens, it is important to remember that the lender will most certainly side with the Appraiser.

Frustrated Borrowers - Income

I had a client who called me last week extremely frustrated with the loan underwriting process. My first response: get in line! As I wrote last week, things are getting tougher by the week. Loans which should have easily passed through underwriting in a few days are now taking weeks. In order to ease the process, I have been advising my clients to spend a little more time lining things up before we submit a file to an Underwriter.

With that in mind, I figured I would take a few posts and update you on some of the things to keep in mind when preparing to apply for a mortgage loan. Today, let’s tackle income.

Underwriters want to make sure you can make your mortgage payments. Essential in that process is your ability to earn money. An underwriter is looking to see that you have a job, that your job is stable, and that you make enough money to make all your payments.

To ensure employment you will provide a minimum of 30 days worth of pay stubs. These should include Year to Date earnings. The lender is concerned mostly with your Gross earnings; however they will be interested in your take home pay as well. If you have commission or bonus pay that makes up a significant amount of your income then expect additional paperwork. To calculate commission or bonus income an Underwriter will want to see your tax returns for the past 2 years. They will take the 2 year average of your “non-base” pay and add that to your gross base-pay.

To determine stability you will be asked to submit W-2’s from the past year, and in some cases, particularly if you have changed jobs multiple times in the past 2 years they may want 2 years worth of W-2’s. The purpose is to verify that you have been employed, and that your income has not taken a significant decline. For a self employed borrower you will need to submit your complete tax returns for the previous 2 years.

Lenders want to ensure that you are not paying too much for your house. That typically means that less than 40% of your monthly gross earnings should go to your house payment. While it is possible to receive an approval when you spend 50% of your earning on your home, it is becoming increasingly difficult for lenders to justify lending to someone who is literally living paycheck to paycheck.

By understanding what Lenders are looking for it is easier to prepare for an easier loan process. As always, if you have specific questions about your situation, feel free to email me at jayhart@cottonwoodmtg.com or call me at 801-256-0904.