As promised, here is part 2 of the Home Financing Guide for borrowers looking to purchase a home in Spring Hill Florida and the surrounding Tampa Bay Real Estate Market. In this section, we will be looking at different aspects of the appraisal process. A Real Estate Appraisal is an important part of the lending process and can determine the outcome of your transaction beyond a borrowers own qualification. In addition to any borrower requirements, the property iteself has to also qualify in order to meet the lenders requirements. Different loan programshave some different requirements with regard to how the property is appraised and the condition of the home is assesed. As always, if you have any questions regarding this process, please feel free to contact me at any time.
Beyond the Borrower’s qualification for obtaining a loan (credit, ability to pay, etc.) the value and condition of the home is the next important consideration. The home is the collateral for the mortgage loan which means that if there is a loan default, then the property is taken and typically sold to cover the unpaid balance of the home loan. Therefore the home property needs to have sufficient value and be in good enough condition so that if default occurs, the lender can sell and recoup the loan money.
There seems to be a lot of confusion between the difference of a County Assessment and an Appraised Value. These are two different thins yet many people associate Assessment with Appraisals. A County Assessment is a method of declaring property value so that a county or other government entity can levy a tax on that property. It is not a true market assessment of what the home could sell for nor is it based on market data. When property values were appreciating rapidly the rule of thumb was that Assessed Value was lower than what one could actually sell the home for so it was understated. But when property values dropped and government entities were short of funds then Assessed Values became higher than what the home could sell for. This makes the use of Assessed Values an unreliable indicator of true market value.
What is A Real Estate Appraisal? An Appraisal is considered to be a process that provides an accurate figure of what the home could actually sell for in the current market.A licensed, professional Appraiser will typically conduct a walkthrough of the home and property, take measurements and pictures and assess the condition of the home. They will then find similar homes (size, features, etc) that have recently sold in the area using county records and determine the subject home’s value based on the actual sales price and features of the similar homes. This is what the term “Comps” (comparables) come from. Armed with many other details including zoning, surrounding neighborhoods, and average time to sell a similar home, the Appraiser will determine the market value of the home that the lender will use as the collateral for the home loan.
If the borrower is applying for an FHA, or VA loan then that Appraiser must be approved by those agencies. The appraisal requirements for those kinds of loans are a bit more stringent and may require repairs that need to be completed and re-inspected prior to the loan being approved and funded. Buying a new home under construction requires additional work on the Appraisers part including a review of the materials list, the blue prints and the builder contract to predict the value of the home after it has been constructed.
Due to past abuses in the Lending and Appraisal communities many regulations and restrictions have been put in place to prevent Appraisers from being coerced into provided inflated values.The Home Valuation Code of Conduct (HVCC) and new regulations from HUD have the set the tone for the independence and separation of Appraisers to individuals (such as Loan Officers and Borrowers) who are directly involved in the loan origination process. The Appraiser cannot be told what the target appraisal value needs to be (although they will have a copy of the sales contract). The Loan Officer is not allowed to have direct contact with the Appraiser and in fact are not allowed to even select the Appraiser for the loan. The Appraisal Management Company makes the Appraiser selection and conducts all communications with the Appraiser. The Borrower (home owner) cannot try to persuade the Appraiser as to the condition or value of the home and property in any way. This hand-off approach allows true independence and reduces undue influences others may have on the valuation of the home.
Appraisals costcan be anywhere from $400.00 and up depending on the size, location, and use of the property being appraised. It may be important to wait on the appraisal order until one is confident that the loan has a good chance of approval. Otherwise the appraisal may be a sunk cost that cannot be recouped if the loan does not get approved and subsequently funded. We always will hold of on this part of the process until much of the approval process is complete and we are confident that the loan will close, this eliminates wasteful spending of the borrowers own funds and safeguards our clients from having wasted their funds. Generally, by the time the appraisal is complete much of the underwriting is already complete and many of the borrowers conditions have already been satisfied.
Be on the look out for the next series in the Home Financing Guide where we will take in depth look into Interest Rates and go over all the different things that determine rates, including buy downs, paying points and credit. If you have any questions regarding your home purchase in Spring Hill Florida.
Allied Home Mortgage
4117 Mariner Blvd.
Spring Hill FL, 34609