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.  

When the Federal Reserve slashed the Fed Funds rate by .75% and reduced the Discount Rate to 4.0% on Tuesday, it came as one heck of a surprise to many. But what was an even bigger jaw-dropper was the nearly instantaneous effect it had on conforming 30-year fixed rate mortgages. Rates dropped to the lowest levels since 2004! Holy Smokes!

This immediately resulted in some very good news for homebuyers, homeowners, and even sellers. But, since there is no telling how long these rates will remain this low, there is no time to waste… (More on that in a bit.)

Here are a few tips for deciphering the FED Cut:

Homeowners: If you bought or refinanced your home in the last couple of years, now is a great time to refinance, but you will need to have equity in your home. That will prove to be the biggest catch for homeowners with high loan-to-value loans (meaning you owe nearly as much as the home is currently valued at.) But if you do have equity, this might be the best mortgage news you’ve gotten in a long time.

Similarly, if you currently have an equity line on your home, an Adjustable Rate Mortgage (ARM) or an Option ARM, the adjustable rate on that loan will be decreasing, which should help ease the burden on your wallet.

However, I can’t say enough how crucial it will be to act quickly. Lenders, appraisers and underwriters will become very busy very quickly as a result of the rate drop, which may prolong your application approval. This becomes problematic since home prices have been dropping in some areas, and you may need the value your home has today (versus in a month, for example) to be approved for a refinance. This happened to more people than I can count in the 1990’s.

Buyers: Your purchasing power has just gone up! With lower interest rates, you are liable to qualify for a larger loan. I would be remiss though if I didn’t explain that the guidelines have not loosened as a result of the rates dropping. You should still plan to have at least 10% down, and verifiable income. The better your credit score (aka FICO score), the better off you’ll be as well.

Sellers: Ironically enough, in a roundabout way, the lowering of rates (even though values may have declined a bit) can benefit you as well. Why? Because the lower interest rates will likely bring potential buyers (who perhaps shied away from purchasing just a few months ago) back into the market. While you probably still won’t have the upper hand in negotiating, keep in mind that any perceived “loss” you take on selling your home you’ll make up for in purchasing a new home at a great price with a loan at an incredible rate.

As always, I caution you not to make a rash decision, but if you think you are interested in refinancing, go ahead and call us today to get started. While I’m not a psychic by trade, I can say that my crystal ball is predicting these low rates will be short lived. Based on the fact that the 10 year note (which has a huge impact on mortgage rates) was at 3.5% +/- today, and last year inflation was 4%+/- (real inflation, not just core CPI), it doesn’t really take a fortune teller to realize that investors aren’t going to accept negative returns for long. Unless, of course, the economy tanks- and then we’re all in trouble.

Call us today to see if you qualify. You’ve got nothing to lose, but perhaps a great deal to gain!