Residential Appraisal Tips
Generally speaking, an appraisal is an unbiased estimate of market value. Determining an exact value, however, is very scientific and an appraiser has many specific guidelines to follow including the following:
- A general rule of thumb is that the comparables used for an appraisal should have sold within the last six months and be within one mile of the subject property.
- An appraiser is required to use two comparables that have sold within the last 90 days and at least two properties that have not yet sold but are active or pending listings.
- An appraiser is not to use foreclosures or short sales as “comps” unless they are the only comparables available.
- Appraisers are able to be more lenient than ever regarding repair items, however, if the home has an issue that affects safety, the appraiser must require the repair. The rule here is the home must be safe, sound, and habitable.
Another appraisal issue that needs to be on your radar screen is renovations. It is more important than ever to inform the appraiser of all subject property renovations and when they were done. Sending over photo’s takes it to another level and is super helpful to the appraiser.
Also, more and more consumers are accessing Zillow for property information. Be aware that this system relies on tax assssor data only and, thus, is rarely accurate. A quick search of comps in the neighborhood will always lead to a more reliable estimate of value.
These are a few good tips to follow to make the appraisal process as smooth as possible!
May 8, 2012 by James Williamson · Leave a Comment
Economic Roundup: Week of May 7th
Weaker than expected global economic data and continued uncertainty in Europe helped mortgage rates stay low and near record low levels over the past week.
The economic data released last week in the US, Europe, and China generally reflected a slowing pace of economic growth. Spain became the eighth euro zone country to officially enter into recession, meaning that roughly half the members have seen at least two consecutive quarters with contracting economies. Even Germany’s economy is showing signs of weakening. Economic strength in the US early in the year has been waning recently as well. As usual, what’s bad news for the economy was good news for mortgage rates, as slower economic growth reduces inflationary pressures.
In addition, Friday’s important Employment report fell short of expectations. Against a consensus forecast of 170K, the economy added just 115K jobs in April, but the figures for prior months were revised higher by 53K. The Unemployment Rate unexpectedly dropped from 8.2% to 8.1%, the lowest level since January 2009, but the decline was mostly due to people leaving the labor force. Following a strong start to the year, the trend has been slowing, with net job growth over the last two months significantly lower than during January and February.
Looking ahead, this week both the Trade Balance and Import Prices reports will be released on Thursday. Then, Producer Price Index (PPI) and Consumer Sentiment will be released on Friday. The PPI report is the biggest of the week and focuses on the increase in prices of “intermediate” goods used by companies to produce finished products. There will also be Treasury auctions on Tuesday, Wednesday, and Thursday.
May 8, 2012 by James Williamson · Leave a Comment
Week of April 2nd: Economic Roundup
Mortgage rates are on a bit of a recent roller-coaster ride and mostly due to shifting expectations of future Fed policy. The volatility began on March 13 following a Fed announcement as investors lowered their expectations for additional quantitative easing (QE3). Last week, however, comments from Fed Chief Bernanke caused investors to raise their expectations for future QE3 and mortgage rates dropped. Yesterday, the Minutes from the recent Fed meeting were revealed and investors did not like them and have again lowered their expectations for QE3. The Minutes suggest that most Fed officials would support QE3 only if the economy performs much more poorly than expected. Who knows where we go from here but one thing seems probable, further volatility.
The biggest economic report due out this week is Friday’s Employment Report. As usual, this data on the number of jobs, the Unemployment Rate, and wage inflation will be the most highly anticipated economic data of the month.
April 5, 2012 by James Williamson · Leave a Comment
The 6 Most Common Home Inspection Problems
Foreclosures continue to dominate the market. This creates incredible buying opportunities, however, because most of these properties are sold “as-is”, buyers must be very cautious and do proper due diligence when purchasing a foreclosure. A good home inspection becomes a critical tool for a buyer during this process. According to HGTV, here are the six most common problems uncovered through the home inspection process and the main issues that a home buyer needs to investigate before buying a foreclosure:
1. Water problems. Leaky pipes, unseen leaks behind siding or in roofs, and water intrusion into basements and attics are the #1 problem uncovered on home inspections. These are serious issues that can be quite costly to fix. In 36% of homes inspected, poor grading and drainage were observed, which often times is the source of major water problems.
2. Roofing. The roof is a difficult part of the house to inspect and inspectors don’t always climb atop roofs when preparing the home inspection report and much can be missed from the ground. Roofs don’t last forever and they will begin to show diminishing performance over time. Some roofs have also been improperly installed leaving gaps for water, rodents, and insects to enter the home. Make sure the roof is safe and effective before pulling the trigger on a foreclosure.
3. Electrical wiring. Incorrect or undersized wiring can be disastrous and dangerous for home owners. Older homes were never wired to handle the amount of appliances, electronics, and modern conveniences that they must today, and when overloaded, have the potential for fire. Another major problem seen by inspectors is do-it-yourself projects that result in overloaded circuits and exposed wiring!
4. Plumbing. Unfortunately, the most common places for plumbing leaks are behind walls, under floors, and in connections between pipes. In addition, the water often runs down walls and often collects in places nowhere near the true source of the leak! Thus, fixing these leaks can be quite problematic and expensive. It can also lead to consequences like mold damage or even pests like carpenter ants.
5. Heating and Cooling. An inspector will run a furnace and air conditioner through a cycle to ensure they are working but home buyers should also investigate how much the longer the units will last. If they need replacing any time soon, then this cost should be built into the projected cost of the home.
6. Decks. A beautiful outdoor space can actually be covertly hiding structural problems or poor workmanship. Investigate who built the deck and when. If the home owner built the deck be extra careful with the due diligence. Make sure the deck is structurally sound and safe.
There are fantastic deals available in the market place today, but it is more important than ever that buyers do proper due diligence to make sure the money saved does not disappear in costly repairs.
April 5, 2012 by James Williamson · Leave a Comment
FHA Underwriting Changes
FHA made a number of key underwriting changes this week, some good, some bad. Below is a brief summary of the most important changes made:
- For self-employed borrowers, a year-to-date Profit & Loss Statement (P&L) and Balance Sheet are required if three months have elapsed since date of most recent filed and submitted tax returns. In addition, if income from the P&L is being used to increase the amount of qualifying income for the borrower, then the P&L must be audited by a CPA. These are much stricter requirements for self-employed borrowers.
- “Disputed” items showing on a borrower’s credit report will not be as much of an issue as in the past and don’t have to be addressed if they are less than $1000 and more than two years old.
- Collections showing on a borrower’s credit report also won’t be too much of an issue up to a certain degree. If the total outstanding balance of all collection accounts is < $1,000, the borrower is not required to pay these off. However, if the total outstanding balance of all collection accounts is > $1,000, the borrower must either pay off the collection accounts in full or show a payment arrangement with at least three months of timely payments having been made (this payment would have to be counted in debt ratio as well). Paying down collection balances to reduce the balance under $1,000 is not allowed.
- Judgments showing on a borrower’s credit report have to be paid in full unless a payment arrangement is in place with at least three months of timely payments can be documented. Also, tax liens always have to be paid in full.
April 5, 2012 by James Williamson · Leave a Comment
Week of March 19th: Economic Roundup
Mortgage rates have been remarkably stable for four months but have experienced an unexpected bump-up over the last couple of weeks. The main reason for the up-tick is investor reaction to optimistic comments from the latest March 13th Federal Reserve meeting. These comments caused investors to reduce expectations that the Fed will continue to purchase mortgage-backed securities (MBS). Recent sentiment had been that they would and this had greatly contributed to recent mortgage rate lows. The Fed statement also acknowledged that rising energy prices will lead to higher short-term inflation. In fact, last week’s PPI and CPI inflation figures indicate that this is already happening.
March 23, 2012 by James Williamson · Leave a Comment
Week of March 12th: Economic Roundup
While it was stronger than expected, the important monthly Employment report had only a minor impact on mortgage rates. Against a consensus forecast of 200K, the economy added 227K jobs in February, and revisions to prior months added an additional 61K jobs. The Unemployment Rate remained at 8.3%, as expected. Average Hourly Earnings, a proxy for wage growth, increased at a 1.9% annual rate. With gains above 200K for the first three months of the year, the recent pickup in job growth and the decline in Jobless Claims reflect solid improvement in the labor market. Overall, the economic data came in pretty close to expectations last week, and Greece successfully reached a debt deal with private bondholders. With a lack of surprises in the economic news, mortgage rates ended the week with little change.
The big news this week is today’s Fed meeting. Investors will be trying to determine the likelihood of additional Fed easing. The most significant economic data this week will be the monthly inflation reports. The Producer Price Index (PPI) focuses on the increase in prices of “intermediate” goods used by companies to produce finished products and will come out on Thursday. The Consumer Price Index (CPI), the most closely watched monthly inflation report, will come out on Friday. CPI looks at the price change for those finished goods which are sold to consumers. In addition, Retail Sales, Industrial Production, Consumer Sentiment, Import Prices, Philly Fed and Empire State round out a very busy week.
March 13, 2012 by James Williamson · Leave a Comment
President Obama Announces FHA Refinance Incentive
President Obama announced a new major FHA change last week that generated a lot of press and has a lot of substance. Home owners who purchased prior to May 31, 2009 using FHA financing will be allowed to refinance at an up-front mortgage insurance (MIP) factor of only .01% and an annual MIP factor of only .55%. The MIP factors are increasing to 1.75% and 1.25% on April 9th, so this equates to HUGE savings for any eligible home owner. This is a big deal equating to a savings of $100 a month on a $150k loan!
March 13, 2012 by James Williamson · Leave a Comment
Week of March 5th – Economic Roundup
Testifying before Congress on Wednesday, Federal Reserve Chief Ben Bernanke made several comments that caused mortgage rates to swiftly push higher. The main effect of his comments was to lower investor expectations that a third round of Treasury bond and MBS purchases by the Fed is unlikely. Investors recently have been increasingly optimistic that the Fed would purchase additional MBS and this had helped push mortgage rates to all-time lows. As the economic data has improved in recent months, however, the need for additional Fed easing has seemed to decrease. Last week’s Fed testimony was seen by many investors as one of the first signs that Fed officials share this view.
Recently released housing data continues to be encouraging. January Existing Home Sales rose 4% from December and are now at the highest level since May 2010. January Pending Home Sales rose 2% from December and are now at the highest level since April 2010. Recall, that the home buyer tax credits expired in the Spring of 2010, so recent volume figures are the best since this time. Also, since Pending Home Sales are a forward-looking measure, this data suggests that home sales should improve in coming months.
One other item worth mentioning is the price of oil. Concerns about Iran have pushed oil prices up to the highest level in nine months. Higher energy prices are bad for consumers and the economy. Since higher oil prices have two opposite effects on inflation though, the impact on mortgage rates is uncertain. Rising energy costs add to inflation (bad), but they also slow economic growth, which reduces inflationary pressures (good). It’s not clear which influence will be larger over time.
The biggest economic report this week will be the ever important Employment data to be released on Friday. As usual, this data on the number of jobs, the Unemployment Rate, and wage inflation will be the most highly anticipated economic data of the month. ISM Services & Factory Orders are also being released today, as well as Productivity on Wednesday, and Trade Balance on Friday.
March 6, 2012 by James Williamson · Leave a Comment
HARP 2.0 Rolling Out on March 19th
For those upside down on their mortgage, good news may be on the way. The government-sponsored HARP program has been around for years but with limited success. Several key changes have been made to the program and a new improved HARP 2.0 is being unveiled on March 19th.
The biggest change is that moving forward a home owner will be able to refinance despite the value of the owner’s home. Thus, unlimited loan-to-values will be allowed, meaning someone could owe twice as much as the value of their home and still be able to refinance it. The other big change is that if someone has private mortgage insurance (PMI) now, they will be able to refinance maintaining the same level of PMI. It took years of work to get PMI companies on board with this plan but systems are now in place which will enable this to happen. Although current levels of PMI can now be maintained, please be aware that 2nd mortgage balances cannot be rolled into the new loan.
These are two fabulous upgrades to the HARP program and make it a much more viable option for many. To be eligible for HARP 2.0, the current loan must be owned by Fannie Mae or Freddie Mac and originated prior to May 31, 2009. If you pass both of these tests, we would love to hear from you to give you more details about HARP 2.0!
March 6, 2012 by James Williamson · 2 Comments
