Ed's Blog

Ahh, remember the glory days when ordering an appraisal on your home, having it submitted with your loan application, and it being accepted at face value by lenders was a proverbial piece of cake?  Well, even if you don’t, I sure do.  However, in today’s market that easy-as-pie process has become more akin to running an obstacle course, with a blind fold on no less! 

As a result of the generally accepted view that we are currently experiencing a declining housing market, lenders are now putting all home appraisals under the microscope, in an effort to determine  right down to the penny a home’s true value so that they can minimize their risk of loss in the event of a foreclosure.

While some areas have maintained stable values, (desirable neighborhoods, with few to no foreclosures, and fewer homes currently for sale) other areas are not faring as well. Many of these areas are newer, or “starter home” neighborhoods. Unfortunately, due to the number of first time homebuyers who opted for  pay-option, interest only, or otherwise exotic loans, mortgage defaults and foreclosures are running rampant, driving down home values in many neighborhoods.

However, regardless of whether you live in an area where values are holding steady, or in an area where values are declining (or you have no idea how your neighborhood is faring), there’s one thing you share in common with absolutely everyone.  If you’re considering a refinance or purchase in this market, you need to be prepared for the following: 

·        An appraisal will still be ordered, however lenders will also…

·        Look at “comps” meaning they will scrutinize similar properties in your area to analyze current asking prices on homes for sale, what kind of reductions homes for sale in your area have realized, and how long comparable properties to yours are sitting on the market.

·        Examine recently sold properties in your area.  They will compare current sales prices with sales prices from months ago to try to ascertain which direction home values in your neighborhood are heading. 

·        Compare the number of recent sales transactions in your area, in contrast with the number of sales transactions from several months ago.

·        Pay very close attention to how many foreclosures exist in your neighborhood. 

·        Reduce the appraised value of your property and the overall maximum loan-to-value allowed if you’re in a declining market.

If you’ve never refinanced or purchased before, these changes probably won’t bother you.  However, if you’re seasoned in financing your home(s), be prepared for the lender to take more time than they used to in determining your home’s value.  Try not to become frustrated, though, as this increased scrutiny is just part of the process these days.

Of course, our team at Smith Craine Finance can help you with all of this when you decide to apply for a loan.  We can conduct much of the research mentioned above (that the lender will undoubtedly require) and we can save a great deal of time, and energy by letting you know what the likely range of value will be for your home.