There’s a new wrinkle in the process of buying a home, and it’s turning in a major problem. The appraisal used to be something that was done to assure that a lender was not loaning more money on a property than it was worth. In the past few weeks I have seen it become much more than that. It has a become a mortgage killer.
An example — I recently sold a home to a buyer who was well qualified to purchase. The house appraised for substantially more than the purchase price. The property had a brand-new kitchen. Only a few minor issues came up in the home inspection.
The appraiser noted in his report that the interior of the house needed to be repainted, four bedrooms and a hallway needed to be re-carpeted, and the tile in the master bath needed to be replaced. The house had been lived in. The paint was scuffed, the carpet was stained, and I have no idea what he found wrong with the bathroom tile. The underwriter told us that these items had to be done before he/she would approve the loan.
Think about this for a second. These items were purely cosmetic. There were no safety issues, no structural issues, and the house appraised for substantially more than the contract price, even after taking these into account.
The property was a foreclosure, and the bank selling the home would not make the repairs. Because he does not own the property before closing, the buyer could not make the repairs. What to do?
This is a huge problem, and it is preventing buyers from buying homes all across the country. I have talked to Realtors and lenders in California, Florida, Colorado and here, and we are all seeing this same issue. And contracts are falling apart right and left.
In this case the buyer had the wherewithal to deposit money in an escrow account, with the money to be used to pay for the the repairs after closing. We had to obtain bids from contractors, which took several days and delayed closing.
Another solution is a new clause being inserted into sales contracts. Basically it states that if the buyer’s lender mandates repairs, the purchase price of the property is to be increased a like amount. This means that either the seller will perform the repairs prior to closing and be reimbursed at closing, or the money will be deposited in an escrow account to be used after closing.
It will work, provided that the property appraises for the new amount, and the buyer qualifies for the higher loan amount. Or if the buyer has the cash available to pay the additional amount at closing.
It takes a great deal of skill to navigate the mortgage process these days. For help in buying your new home, visit JustCallPowers.com.
“As of last month, lenders had sent out more than 571,000 offers to reduce homeowners’ monthly payments…. That’s 19 percent of the nearly 3 million homeowners eligible for a loan modification under the plan — up from 15 percent at the end of July.”