An Appraisal May Make or Break Your Deal

An appraisal is an important part of any home purchase. This is an evaluation, ordered by lenders, that tells them exactly what their money is going towards; because they focus on the actual value of your property, appraisals are different than home inspections. An inspection looks deeply into the condition of a property, but is less concerned with what it is actually worth.

Once you have a signed contract on a property, and your real estate attorney has reviewed it, your lender will order an appraisal. As the buyer, you’ll pay for the appraisal up front, and regardless of the results, the fee is usually non-refundable.

Once the appointment has been made, but prior to the actual appraisal, an appraiser will look online at what similar homes in the area have sold for recently.

These are called comparables, or comps. Since no two properties are identical, the appraiser will make individual adjustments to the comps to come up with a value for the property. Differences in square footage, number of bedrooms, and lot size form the bases for the appraiser’s adjustments.

After completion, the appraiser sends his or her report to the lender. It happens infrequently, but your deal could be in jeopardy because of a low appraisal. More often, there are items listed on the appraisal that need to be addressed before the lender will give you money to purchase the property. Typically, items such as broken water heaters and missing staircase railings will trigger a hold on your loan.

Sellers should never know the appraised value. The only thing your seller should know is whether the buyer side of the transaction found the appraisal acceptable, or if he or she is being asked to fix any of the items on it.

Your mortgage professional can explain the appraisal process and answer any questions you may have.

Should You Consider Buying Down Your Mortgage Rate?

In the home financing process, there are different ways to buy-down your mortgage rate. One is for the short term, when your payments decrease for a certain number of months or years, and then return to the previous amount.

The other option is a permanent buy-down, which will affect the rate for the entire term of the loan.

In a temporary buy-down, you are paying to reduce the payment, but in a permanent buy-down, you are paying to reduce the rate, which will also lower your payments.

When considering buying-down, you’ll want to ask these two important questions: How much will it cost, and how long do I plan to own the home?

Your recapture period should be your guide. For example, if a buy-down will cost $2,000, but will decrease your payments by $32 per month, that equates to 62.5 months, or more than five years (2000 divided by 32 = 62.5).

If you plan to move within three years, you may want to pass. But if your idea is to live there for 10 years, it might be a good strategy.

Temporary buy-downs are typically available from one to three years. If you are thinking that this initial lower payment enables you to buy more house, note that you will be qualifying based on the payment after the end of the buy-down period. This is called the fully qualified rate, and it helps avoid payment shock when the payments increase again.

Questions? Your mortgage professional can help.