An appraisal is a review and estimate of a property’s fair market value. An appraisal is conducted by a state-licensed professional, an “appraiser”, who has specific training and education to evaluate a property and provide a value for it based on its physical condition, amenities, and location.
Appraisals are typically required by mortgage brokers or mortgage lenders prior to providing a home loan in order to ensure they are not issuing a mortgage loan for more than the property is worth.
An appraisal may also be requested by a homeowner to:
• Dispute rising property taxes
• Determine a home value during a divorce or estate settlement
• Help determine an accurate selling price or to negotiate during a sale
• Show proof of replacement/repair costs for homeowner’s insurance
• Required by a government agency
• Dispute an eminent domain case or during another lawsuit
Can Another Mortgage Company be Used After the Completed Appraisal?
In most cases, yes. Although the borrower (the potential buyer of the property) pays for the appraisal, the mortgage company actually “owns” the appraisal and will be listed on the report. Most lenders will transfer the appraisal to the new lender, but some may charge a fee to complete the transfer—this is called an “Appraisal Retype Fee”. If the original lender you were working with denies the transfer, unfortunately, you would have to pay for another appraisal under the new lender’s name.
Who Determines The Market Value Of A Property?
The seller of a home or property sets the asking price—not the appraiser. Typically, the listed price may be determined with the help of a real estate agent. Real estate agents conduct a Comparative Market Analysis (CMA) to determine the average cost for a home of your size, on a lot of your size, in the condition, and in the location of your home. Sellers rarely order an appraisal so as not to be bound by the appraisal when listing their property at their determined asking price and can ask for more than what their real estate or CMA recommends.
However, since most mortgage companies will not provide a loan for more than the property’s appraised value, a borrower/buyer can use an appraisal to negotiate the price of the home.
How Can I Assist The Appraiser?
Appraisals can be conducted for several reasons. Below are some points to consider if your home is being appraised that could help to influence the appraised value by pointing out important aspects of your home. You should provide the appraiser with the following information, where applicable.
• The purpose of the appraisal.
• If you are selling the home, what price you have it listed at, and if you are selling through a realtor (and who).
• If you are purchasing the home; the agreed sale price and type of mortgage you will be using.
• Additional property or appliances that are included with the property.
• For investment properties, disclose the income that the property generates and expenses it requires for upkeep.
• Supplying a copy of the rental agreement or a copy of the deed, purchase agreement, property survey, or other property-related documentation may also be helpful.
• Any easements that are a part of the property and ownership of right-of-way or agreements pertaining to the easement
• Real estate tax bill, annual property taxes, utility access, and other amenities of the property.
Credit scores are a means of evaluating borrowers to determine their ability and trustworthiness to repay a debt. Information regarding your history of borrowing credit or making certain payments on time is gathered and used as a basis for a credit scoring system. Using a complicated algorithm, credit scoring companies use the following information to provide a credit profile to lenders and other creditors about your creditworthiness—your ability and the likelihood of repaying debt and making on-time payments.
• Your borrowing history, including how much was borrowed and payment history
• Age of your credit accounts
• Total outstanding debt
• Comparison of your debt to your monthly income (debt to income ratio)
• Types of credit accounts you have open
• Predilection for late payments
• Collection actions taken
Typically, this information is gathered and analyzed and then displayed as a number—a FICO score. This number, or score, falls between 350 and 850. The lower the score, the higher the risk you are to be offered credit and the higher the number, the lower the risk you are considered being. Those with a higher score can often receive better loan terms and interest rates, especially on a home loan.
When you are ready to apply for a home loan, it is important to ensure that the information on your credit report is accurate. You can request a free, in-depth report of your credit history once every 12 months. To get copies of your report, contact the three major credit reporting agencies:
Equifax: (800) 685-1111
Experian: (888) EXPERIAN (397-3742)
Trans Union: (800) 916-8800
You may also access your report online at https://www.annualcreditreport.com.
By reviewing this report, you can check for any incorrect information and for fraud—not just to verify your credit score.
What can I do to improve my credit score?
Credit scores aren’t always equally calculated by each of the three major agencies, although they are usually pretty close in "grading" their credit scores. Some weigh certain aspects of your credit history heavier than others, which can be a good or bad thing, depending on what it is. Typically, the following are the most common things to affect your credit score:
• Timely Payments. Making payments on time, even just the minimum amount, is a significant factor in determining your creditworthiness. Your score can be affected negatively if you have a late payment, more so if late payments are a recurring issue on your account.
• Non-Payments. Skipping out entirely on payments, no matter the reason, greatly affects your credit score. Accounts that have not been paid for 30+ days are often sent to a collection agency and marked on your credit history. As are bankruptcies, foreclosures, and repossessions.
• Total Outstanding Debt. Your score can drop if you have a lot of debt, using up most of your credit line or compared to your monthly income.
• Account Age. Not having much of credit history can also influence your score. The longer an account is open, the longer credit agencies have an insight into your borrowing habits (good and bad).
• Inquiries. Signing up for new accounts requires lenders to check your credit report. Multiple or frequent checks by lenders can negatively affect your score (monitoring programs or “pre-qualifications” are typically excluded).
• Type of Debt. Some credit scoring agencies look at the types of debt you have—private loans, credit cards, secured/unsecured debt, car or home loans, etc. Too much of one type of debt can be a bad thing, especially unsecured debt like credit cards, where there is no property that can be repossessed in the event of defaulting on a loan.
• Other Data. Credit agencies may also make determinations based on more than just credit/debt-related information. For example, they may consider other information such as your salary, your job title, or length of employment.
To improve your credit score, focus on paying your bills on time, paying more than just the minimum to bring down your outstanding balances, and not opening new accounts. Contact us today to review your creditworthiness, discuss home loan qualifications, or for questions you may have regarding the home loan process or improving your score to better qualify for a mortgage.
When a homeowner cannot make their monthly payment of the principal and/or interest on their mortgage, the lender can have the home “foreclosed” on as stipulated in the terms of the mortgage contract. This means the lender can take ownership of the property, have the current homeowner evicted, and resell the property.
What Happens When a Mortgage Payment is Missed?
If you miss a mortgage payment, your lender has the legal right to protect their investment in your loan by repossessing the home and legally forcing you to leave the home. If the lender resells the home for less than what you owe or the property value has decreased below what you still owe on the home, the lender can pursue a Deficiency Judgement to regain some of what they lost from you. Both a judgment and a foreclosure can severely negatively impact your credit score and ability to purchase another home. Avoiding foreclosure is the best way to avoid negative effects on your credit history.
How Can a Foreclosure be Avoided?
If you are struggling to make your payments or know that you will struggle to make your next payment (e.g. due to unexpected medical costs or loss of a job) you should immediately contact your mortgage lender’s Loss Mitigation Department. You may be required to show proof of your financial hardship, but it is possible that they can help you during such a dire time. You can also reach out to a housing counselling agency or foreclosure attorney to assist you in contacting your lender to arrange for alternate solutions to foreclosure.
You may qualify for one of the following:
Pre-Foreclosure Sale: While this would mean selling your home, it is better than having the home foreclosed upon you. Often, pre-foreclosure sales are for less than the house may be worth or less than what you owe. If there is a difference between the sale price and the remaining loan balance, the lender may seek a judgement to regain the remaining amount.
Mortgage Modification: If you are passed due but can resume making your normal payments—but can’t afford to repay what was missed—your lender may modify your mortgage agreement. The modification may add your past due balance back into the principal balance and continue the same monthly payment as normal (and slightly extending your loan term), it may completely adjust the monthly payment requirement to a more affordable level, or it may increase the loan term so that the payments are reduced but it will take you several years longer to pay off the house.
Deed in Lieu of Foreclosure: This option is much like returning the home in exchange for forgiving the debt. It will still affect your credit; however, not as severely as a foreclosure would.
For FHA Loans: If you financed your loan as an FHA Loan, you may be able to receive some relief from the FHA Insurance Fund. This program provides a single payment for borrowers who are at least 4 months past due but no more than 12. Also, the borrower must show that following the onetime assistance, they will be able to resume their regular payment schedule. Other conditions also apply to this option:
• You must sign a Promissory Note allowing HUD to place a lien on the property in exchange for the onetime payment from the FHA Insurance Fund.
• The FHA Insurance Fund payment is interest free but will have to be repaid eventually. Typically, it comes due when you pay off the loan or sell the property.
For VA Loans: Veterans also have their own program to provide financial services for VA homeowners to avoid foreclosure. This program is offered by the Veteran’s Administration Loan Center and details vary for specific situations.
Reinstatement: An agreement between you and your lender to provide a lump sum of payment to bring your account current by a specific date.
Forbearance: Depending on your situation and your lender, you may be allowed to delay payments for a short period; however, the account will have to be brought current once the forbearance period ends.
Repayment Plan: Your lender may allow you to catch-up on your missed payments by adding a portion of the overdue amount to several of your monthly payments until your account is reconciled.
The many different types of home loans available can seem overwhelming. Should you choose a fixed rate, adjustable rate, or government loan mortgage? The truth is there is no right answer. Choosing a loan type is an important decision that is best made after you have researched your options. Remember, taking the time to explore your options now can mean saving thousands of dollars in the long run.
Ask yourself the following questions to determine what loan type is right for you:
A professional lender is the best resource available to help you decide which loan best fits your needs. Follow the general guidelines outlined below to get started selecting the best mortgage for your home.
Remember, this is just a general guideline. To determine which loan program will best suit your needs and current financial standing it is highly recommended to discuss your options with a mortgage lender. The loan officers of BlueGrey Mortgage have over decades of experience individually and are always happy to answer any questions—even if you are only in the stage of considering all of your options.
One of the top reasons stopping people from attempting to purchase a home is the fear their credit history or credit score won’t be good enough to get them qualified for a home mortgage loan. While this may be true with some loan programs, there are several other mortgage loan options available which accept less than favorable credit scores or marks on your credit history.
Credit scores are essentially a grade given to an individual that estimates the likelihood they will repay a debt on time. The “grade” or score can range from 300-850. There are many factors that can affect this score negatively or positively, and a score below “Good” may require mortgage loan applicants to put more money down or have a higher interest rate.
Overall, the ranking for scores is as follows:
BlueGrey Mortgage is dedicated to help clients get the home they’ve always wanted. That’s why we provide such an extensive list of mortgage loan program options and do what we can to work with individuals who have damaged credit.
Each of the below mortgage loan options are available to borrowers with a credit score under the FICO ranking of “Good”. In addition, these programs also forgive negative aspects of your credit history, like a foreclosure or bankruptcy if it occurred 3 or more years prior to your mortgage application.
Here is a list of mortgage options available that we can help you get pre-qualified for:
One of the most commonly sought mortgage loans by borrowers with a lower credit score. Accepts FICO scores of 580 or better with the condition of 3.5% down. Lower scores may be accepted if 10% or more is paid upfront.
While the Veterans Administration does not set a specific credit score requirement, the lenders providing the loan often require a score of 620 or better. Like FHA loans, lower scores may be accepted under certain conditions.
The U.S. Department of Agriculture also does not set a strict FICO score requirement in order for a borrower to be eligible for the loan. The primary focus of this loan is to help those with lower scores and income to afford rural housing.
Each of these conventional loan programs (backed by Fannie Mae and Freddie Mac, respectively) requires a 620 or higher as well as a low down payment (3-3.5%). The Home Possible Loan Program is also open to qualifying individuals with a credit score lower than 620, but on the condition they can submit a slightly increased down payment (5%).
First-time homebuyers are often unfamiliar with the mortgage loans available to them and the loan process. To help educate first-time homebuyers, we have created the below guide to discuss different loan programs and outline what you can expect when you are ready to buy your first home.
Quelling Fears About Buying A Home & Qualifying For A Mortgage
Many individuals are worried about the affordability of buying a home and their financial standing to qualify to do so; however, with recent reports stating that maintaining rent of a 2-bedroom apartment in Tampa requires a minimum hourly wage of over twenty dollars, it is likely that continuing to rent is less desirable—or affordable—for most young adults.
Buying a home can actually be far more affordable than paying rent, plus many loan programs are available that accept lower credit scores and little to no down payment. In addition, most lenders will allow homebuyers to roll their closing costs into their loan or provide a line of credit—requiring no out-of-pocket costs.
Mortgage Loan Process
This is a general overview of the steps to take when seeking a home loan. For a full description of our process, you can review our Loan Process page.
1. Determine How Much You Can Borrow. Using a Mortgage calculator determine what loan amount will max your monthly budget. It is recommended to select a loan value below this max amount; one that won’t force you to scrape by every month. You want to maintain a mortgage that will be affordable, even if there are changes in your employment or finances years down the line.
2. Get Pre-Qualified For A Home Loan. Now that you have a general idea of what you can afford, speak with a mortgage lender to pre-qualify for a home loan within your means. You may qualify for a higher loan amount than you expect, so it is important to remember to not stress your monthly finances just to have a slightly more expensive or larger home. Finances can change, so treat your home purchase as an investment and opt for a mortgage that will continue to be affordable for the term of the loan.
3. Go House Hunting. Begin looking for homes within the range of your pre-qualified mortgage loan potential that are also within areas desirable to you. It is highly recommended to work with a real estate agent. Homebuyers are not responsible for paying an agent; real estate agents are paid a commission that is added to the seller’s closing costs—so you get the professional advice and house-hunting assistance at no cost to you.
4. Apply For A Home Loan. Once you have selected the home you wish to purchase, you will reach back out to the lender you pre-qualified with (going back to the same lender helps you to avoid a requalification process with a new home loan provider). You will have to submit several documents, usually about 30 days’ worth of financial statements and proof of income.
5. Close On The Home. Finalize all negotiations and complete the paperwork for the sale of the home. You won’t technically receive the loan funds to pay the seller—your lender will transfer the funds directly to their account and the deed to the home will be collected from the seller and held in escrow until you make your final payment on the home loan. Then, you get your new house keys and go home!
FHA Loans: FHA loans are more accepting of poor credit history (or a limited credit history), widening the availability of potential homebuyers. This mortgage loan program is available for first-time homebuyers and requires a down payment as low as 3.5%.
Conventional Loans: Special loan programs offered by Freddie Mac and Fannie Mae enable homebuyers to qualify for a conventional with as little as 3% down.
VA Loans: Restricted to individuals qualified by military service or other entitlements (e.g., widowed spouses), this loan program has no down payment requirements, no PMI, and some of the closing costs may be covered.
USDA Loans: No down payment required! This home loan encourages buyers to purchase property in more rural areas. Also, this home loan program is more forgiving of lower credit scores.
A traditional fixed-rate mortgage is the type of mortgage that comes to mind for most individuals when thinking about buying a home. With a traditional fixed-rate mortgage, a set interest rate is applied to the loan and paid monthly, typically added to the mortgage payment. Fixed-rate mortgages may have a term of 10 to 30 years; dividing the loan balance plus interest by the length of the term so the loan is paid off in full by the end of the term (call amortized). Even though the loan is amortized to be paid off at the end of the loan term, fixed-rate mortgages can be paid off early without penalty.
It is common for most fixed-rate mortgages to require a down payment of 20% but there are many loan programs available that allow for less—some even as low as 3% down.
Depending on the loan program and loan provider, your fixed-rate mortgage process may include setting up an impound account—more commonly known as an escrow account. It is common for this type of account to be created when financing a home. Besides your monthly mortgage payment, your loan servicer will collect an additional amount to cover the costs of property taxes and homeowner’s insurance. The additional amount is added into the monthly loan payment and placed into the escrow account to be annually dispersed to your tax collector and homeowner’s insurance carrier on your behalf. You may see your monthly payment fluctuate if your property taxes or your homeowner’s insurance premium changes (but your loan and interest payment will remain the same).
Fixed-rate mortgages are a popular home loan choice. To discuss more about fixed-rate mortgages or to determine which loan program will best suit your buying needs, contact one of our mortgage loan originators at BlueGrey Mortgage.