Attention Realtors and Home-buyers in Arizona: We are in a market identified by Fannie Mae and Freddie Mac to be a moderate declining market.This is not the first time I wrote about this issue:Arizona Identified as a Declining Market: Appraisal Reviews Required, but because I am having more people contact me about this lately, I thought I would elaborate further. Also, I found some other interesting blog posts who covered this exact topic and thought I would share their viewpoint.
- Declining Market Values " Oh My, Oh My"!
- Effective Today Fannie Mae's Declining Markets Reinstated Guideline Takes Effect
- Declining Market Values-a lenders viewpoint
The new rules are as follows: If a property is identified by the investor (Fannie Mae/Freddie Mac) through the approval process that it is in a declining area (usually by zip code) the loan will be reduced from its maximum loan amount by 5%. This 5% test also needs to be met by an appraisal. So if the property is NOT identified upfront by the investor, but the appraisal indicates the property is in a declining area, then it also gets reduced from its maximum loan amount by 5%.
For example: A contract is written for $200,000.00 and you are approved by the bank for 100% financing (maximum loan amount). If the property is identifed as a declining market area, then the maximum amount the bank will borrow is reduced to $190,000.00.
This does NOT mean that there isn't any 100% options. I have heard too many lenders throw this verbiage around lately. It just means if the borrower needs 100% financing, then we need to make sure the property is NOT in a declining area. There are areas in Arizona that this rule does not apply to.
Last, If you have a client that needs 100% but is looking in a declining market area, please remember that FHA loans are a great alternative. FHA financing does NOT fall under this declining market rule. The home just needs to appraise for the value your purchasing it for. Also FHA allows Down Payment Assistance, so your client might be able to structure a transaction to get the same benefit as 100% financing. I had a client recently use this option to get financing.
I hope this clarifies things a little more out there, since there is so much confusion on this topic.
We are unique people out there. We expect better then "would you like fries with that drink". I just have learned to use my Midwest values and transfer them into my mortgage business. If you are looking for something a little more unique in your next mortgage loan, please do not hesitate to get a hold of me.My name is Gary Miljour and this is what I do best.