by Irene Moustakas on February 22, 2012
If you are purchasing a home and the appraised value comes in lower than the sales price, this can be a deal-killer for many buyers. Lenders calculate the loan amount based on the lesser of the purchase price or the appraised value. If you’re at the Loan-to-Value ratio limit; for instance, you’re just putting 20% down, then this will affect you more greatly than if you’re putting down a flat amount that has no affect on the LTV ratio and the type of loan or interest rate you qualify for. Assuming it does make a difference, as it does for most buyers, then you will have a few choices on how to proceed:
- Attempt to appeal the appraiser’s valuation. Be prepared with at least 2 strong comps that are arguably “better” than the comps the appraiser selected. “Better” means more similar to the home you are buying (in square footage, bed/bath count, lot size…) as well as closer to the home you are buying (more indicative of the neighborhood prices).
- Negotiate the sales price down.
- Pay the additional difference in the sales price and appraised value.
- Back out of the contract. If you have an appraisal report contingency and you did not remove it, then you do not have to forfeit your earnest money deposit.
This is actually the usual order of the process as well. Appealing value takes a few days, but sellers have an interest and a hand in this as well; they usually will not want to negotiate the sales price down, but it has happened in the past. If they refuse to reduce the purchase price, then the option goes back to you, to either pay the difference or walk out and find a new home.
by Irene Moustakas on January 10, 2012
A new law has passed that will directly affect every person seeking a mortgage securitized by Fannie Mae or Freddie Mac, or insured by FHA, effective tomorrow, 1/11/12. Nearly every loan right now is held by one of these Government-Sponsored Entities (GSEs), so this will affect almost everyone.
The Temporary Payroll Tax Cut Continuation Act of 2011, signed into law by President Obama on December 23, requires the Guarantee Fees charged by Fannie and Freddie to increase from what is currently being charged. What this means is that the charge will be passed directly on to you, as a consumer, which means that getting a loan will cost you more. Some of these charges will result directly in interest rate increases, so you will essentially be paying this fee over the life of the loan.
If you are currently locked in on a loan and need to extend your lock, this will affect you as well due to increased extension costs. What I find interesting is that this tax law has nothing to do with mortgages or the GSEs’ risk loss; it’s simply a way for the government to tax homeowners.
The Guarantee Fees will start increasing the closer we get to a certain date, which I believe is March 1, 2012, but some lenders are implementing the increases beginning tomorrow, depending on how long you need for your lock.
We’ll know more as lenders start implementing the increases. Some will try to soften the blow by taking on part of the increase fee; others will pass it on in full to you. So despite any market changes or improvements, this law will only aid in increasing overall fees and/or interest rates.
You can read the statement made directly by the Federal Housing Finance Agency here.
