As I mentioned in my previous blog I will be adding to this series to help buyers with there mortgage applications and to better understand the "why?" since the mortgage world can be a very unfamiliar place. So far we have covered Income, Employment, Assets and Credit.
Home buying Rules #5: The house
When you apply for a mortgage and close you ultimately sign a Note, which simply put is the I.O.U. and states the terms of your loan.. and you also sign the Mortgage. The Mortgage is the lien on the property that says you will abide by the terms of the Note, take care of the home, maintain it, keep up insurance, pay your taxes and effectively not turn it into a meth lab. (it doesn't exactly say that, but a standard Mortgage says you will not store hazardous materials on the property, so that is a fun little twist on it )
Since there is a Mortgage, the property itself is a pretty important piece of getting an approval.
For your typical residential mortgage the "house" can mean a 1-4 family home, a PUD, or a Condominium. In the majority of cases a single family home or a PUD (which is typically a single family home in an association) are treated almost the same. That is not the case for a Condo.
Let's start with a Condo:
Many buyers beginning with their house hunt will start here, but there are some issues to keep in mind when looking at a condo.
- The Association fee- In my area most association fees for condominiums are in the $200/mo range or higher. to put that into perspective- apply that $200 to a home and you can probably afford a home that is $40,000 higher in price with a very similar payment.
-
Condo approval: When you buy a condo, both you AND the association need to be approved. For an FHA, VA or USDA loan the condo will need to be on an approved list. FHA's expire every 2 yrs. VA doesn't easily fall off the list and USDA Shares FHA's list. For a Conventional loan lenders can do spot approvals.
- The spot approvals are looking for law suits, Investor concentration, delinquencies etc.
- Be aware that associations typically have upfront fees for paperwork and capital contributions. These fees can range anywhere from a few hundred to fill out paperwork to thousands for capital contributions
- On Conventional loans there is a Loan Level Price adjustment effectively increasing the interest rate on a condo almost 1/4% - This add on goes away once you hit 25% down.
Onto One to Four family homes:
- In most markets the single family home is the most common and the least complicated. You just need a safe home that you can live in. It doesn't have to be perfect but it will need utilities and not have excessive health and safety issues.
The appraisal.
No matter the property type, if you are buying a home and you need a mortgage- there will be an appraisal. The appraisal protects the buyer and the lender and the home should appraise for the purchase price, NOT the loan amount.
- The appraisal will compare similar homes (Comps) sold and close in the past 6 months (preferably as new as possible) within a tight radius to the subject
- There will be adjustments for Condition, Quality, Size, location etc. These adjustments should not be a big percentage since the comps used should be similar.
- Appraisals may be done "subject to" - Final completion if new construction, repairs if there are issues, most appraisals will be "as is".
- Buyers will receive a copy of there appraisal prior to closing.
While the vast majority of appraisals I have seen over the years do come in at the purchase price or slightly above there are times that they will under appraise. In my career- the majority of under appraisals I have seen are on For Sale by Owner properties. Typically listed properties will have a market analysis done prior to listing and a selling agent experienced in a local market will not waste your time showing you an over priced listing.
What do you do if you under appraise? First thing we do is review the appraisal. Sometimes it is just a mistake that can be fixed. Next up- renegotiate. If the appraisal is "right" then the seller will have the same problem if they try to sell again, or they will have to hope to sell to an all cash buyer that is not going to do an appraisal. A buyer could also cancel a contract over an under appraisal or they can still buy the home at the agreed upon price. The latter could require a larger down payment or possibly Mortgage insurance. Value can be subjective; a view or a location can be worth more to a buyer than the market will show. I had a client that wanted to be on the same block as their daughter as an example, and they were willing to pay more for that than any one else would. If you do choose to pay more than the appraised value, a lender may ask you to write a letter of explanation.
With all of the rules and tips I have been discussing the past few blogs- these are the tip of the ice burg - designed to be informational but certainly will not cover every scenario. Every deal is different, and part of the reason I do love what I do.
Happy hunting!
Robert Rauf
Mortgage Loan Originator NMLS# 248937
http://www.homebridge.com/RobertRauf
or my blog: http://activerain.com/blogs/rrauf
Office: (732)908-4868 Cell (732)740-0175
RRauf@HomeBridge.com
www.RobertRauf.com
Since 1987 I have been helping my clients fulfill their dream of home ownership! HomeBridge Financial Services, Formerly REMN, HomeBridge Financial Services is located at 9 Grand Ave, Building 2 Suite A Toms River, NJ 08753. NMLS #6521. New Jersey Licensed Lender and Mortgage Banker #L041053. Visit www.Homebridge.com for more information. NJ Mortgages, New Jersey Mortgages, Mortgages in NJ, mortgage in New Jersey, Mortgages in New Jersey, Toms River NJ 08753, Toms River NJ 08755, Brick NJ 08723, Brick NJ 08724 Mortgage in Ocean County NJ, Mortgage in Monmouth County NJ, Jackson NJ 08527, Howell NJ 07731, Lacey 08731 08734, Beachwood 08722 Bayville 08721, Manchester 08757 08733, Manahawkin 08050, Robert Rauf is a Licensed Mortgage Loan Originator in New Jersey
Comments(0)