How To Challenge A Low Appraisal

A low appraisal can prevent you from buying or selling a home at the price you have negotiated. Here's what you can do about it.

How to challenge a low appraisal

In the volatile real-estate market of the past several years, prospective homebuyers and refinancers have encountered the same frustrating obstacle: a low appraisal.

Appraisal complaints have risen in recent years, particularly since home values began plummeting in 2007 and the Home Valuation Code of Conduct took effect in May 2009. But the experts say this isn't the first real-estate cycle in which contract prices don't often match an appraised value.

Why appraisals can come in low

A low appraisal is not necessarily wrong, but it does create a situation in which a lender may not approve the loan. Simply stated, appraisers compare the value of a home with the comparable properties, or "comps," in the surrounding area.

Buyers and refinancers often run into trouble when lenders use an appraisal management company to hire an appraiser who doesn't know the local nuances that could affect home values. In markets plagued by foreclosures or short sales, the surrounding comps can weigh down the price of a home in good standing. Or, if there have been few home sales in a given neighborhood, appraisers may be forced to look for comps in surrounding areas where market conditions and the homes may be different.

Appraisals are a moving target and are based on closed sales, which can be a problem when there are few closed sales to use for comparable properties.

While homebuyers and homeowners cannot control a property appraisal, they can influence and challenge it if need be.

Educate the appraiser

I recommend that [real-estate agents] and homeowners prepare written materials for an appraiser that include information about home improvements and anything else they know about the property that can improve its value. This can improve the chances for a higher appraisal.
It is a good idea that sellers be present at an appraisal. While lenders are held at arm's length and cannot directly communicate with an appraiser, real-estate agents, buyers and sellers are allowed to talk to the appraiser. Agents can present the appraiser with information on comparable sales and how they came up with their sale price.

How to challenge a low appraisal

An appraisal dictates how much money lenders are willing to lend to a borrower. If a home's value is determined to be less than the preapproved loan amount, the lender cannot approve the loan. Buyers have the following five options when challenging a low appraisal:

1. Cancel the contract. Short says that almost all sale contracts today are written with an appraisal contingency that allows buyers and sellers to cancel the contract if the appraisal comes in too low.

What Is The Best Financing For Home Improvement?

Even though you've done an excellent job in describing your situation, a solution isn't clear-cut. Your goal should be to minimize your total interest expense over a time period that allows you to pay off the loans while meeting your other financial goals. How you can do that depends in part on your lenders' willingness to work with you and your attitude toward interest rate risk.

What Is The Best Financing For Home Improvement?

Let's discuss the pros and cons of three options, along with some variations on these options:

1. Ask the lender to increase your home equity line of credit to $235,000.
2. Do a cash-out first mortgage refinancing.
3. Pay off the first mortgage with the available balance on your home equity line and then finance the home improvements with a new home equity loan.

If you are able to increase the credit line to $235,000, you will have enough to take on the projects, you'll hold on to the low interest rate on the debt, and you shouldn't have to pay much, if any, in closing costs on the change to the loan. But the lender has to be willing to work with you. And note that you'll be hanging onto the risk that the line's interest rate could head higher in the future because it's based on the prime rate. You can manage that risk by aggressively paying down the loan balance.
A cash-out refinancing will pay off your existing first mortgage plus release money for your home improvements and repairs. The home equity line lender may have to agree to the refinancing. If it has to agree and won't, then you can look into refinancing both the first mortgage and the line of credit. The bad news is you will lose the low rate on your home equity line. You'll also pay the higher closing costs associated with a first mortgage. The good news is you will no longer face the interest rate risk on the line of credit, and you'll be locking in at near-historic low rates on mortgage loans.
Finally, you could look at taking out a home equity loan as a third mortgage. It's called a third mortgage because it's third in line to be paid in the case of foreclosure. It won't be a third for long because you'll pay off the first mortgage with the loan proceeds and have money to pay for your household projects. The closing costs should be minimal, but the interest rate will be higher than they are on your existing first mortgage. You'd take this approach if you wanted to hold on to the home equity line and if that lender won't sign off on the cash-out first mortgage refinancing.
It's difficult to come up with definitive solutions when you incorporate an adjustable-rate loan into the equation. You know your needs and comfort levels more than I could ever hope to. Which approaches are the lenders willing to discuss, and how willing are you to take on the risk of higher interest rates in the future to hold on to relatively low adjustable-rate debt over the next few years? Talk over these options with your lenders, and the best home improvement financing approach will rise to the surface like cream.

5 Housing Trends In Spring 2012

Some will have to pay more for mortgages

Some will have to pay more for mortgages

Unless you get a HARP or FHA streamline refi, you will likely pay more for a mortgage this spring because Fannie Mae, Freddie Mac and the FHA increased their loan fees in April.
Homebuyers with small down payments will pay significantly more for FHA mortgage insurance premiums.
Those who don't have credit scores in the high 600s, low 700s may be forced to go the FHA route. And will be stuck with the higher fees.
A borrower who takes out a $200,000 FHA loan should expect to pay about $3,500 upfront for mortgage insurance. The fee is 1.75 percent of the loan total. Before the increase, the borrower would have paid a $2,000 fee for the same loan.
Annual insurance premiums went up, too. For a $200,000 loan, the monthly premium is about $208 per month. That's about $17 more per month than what it would have cost before the increase.
In June, the FHA will increase the annual insurance for loans greater than $625,500. A borrower who lives in a high-cost area and takes out the maximum $729,750 (which is the FHA limit for high-cost areas) will pay $912 each month in mortgage insurance alone.

5 Housing Trends In Spring 2012

Refinances get easier, cheaper

Refinances get easier, cheaper

Homeowners who have FHA-insured mortgages and who are current on their payments will be able to refinance with lower fees through the FHA streamline refinance program starting in June. Only loans that closed before June 2009 are eligible to be refinanced in the program.
The FHA will reduce loan fees by more than half on streamline refis. As of June 11, borrowers who refinance through the FHA streamline program will pay only 0.01 percent of the loan in upfront insurance fees and 0.55 percent in annual mortgage fees.
Another government program, known as HARP 2.0, will make it easier for thousands of borrowers to refinance their mortgages this spring.
The revamped version of the Home Affordable Refinance Program allows borrowers to refinance regardless of how underwater they are on their mortgages. Some lenders say they are focused on refinancing mortgages on loans they currently service, for now, but others accept any applicant who qualifies for HARP 2.0. To qualify, your mortgage must be owned or guaranteed by Fannie Mae or Freddie Mac, your payments must be current, and your mortgage must have closed by June 2009.

Getting Your Home Ready To Put On The Market

See with 'buyer's eyes'

See with 'buyer's eyes'

View the house from the buyer's perspective. Pull up and stop right in front of it, just like a buyer's going to do. Then let yourself in the front door, like a buyer's going to do.
How does your home compare to others on the street? Is it inviting? Does it make you want to see more?
Walk through the home with the eyes of a buyer. If you're buying another house, think about what you want to see in your new home.
Pay special attention to the entryway. You want it to be open as much as possible. Look at the furnishings you have in the area, and err on the side of less-is-more. When in doubt, get it out. You want it open and bright with neutral paint.

Getting Your Home Ready To Put On The Market

Keep plans practical

Keep plans practical

Keep any planned changes to the house reasonable and in character with the home and the neighborhood.
Don't lie to yourself. If the house has areas that show wear, get that work done before offering the home.
Seek a second opinion from your agent or a potential agent. A real estate professional can advise you on what repairs or upgrades will give you the most bang for your buck.
The price of your house is going to determine what things you should do. One client spent $10,000 putting in hickory cabinets and granite countertops in the kitchen of a home that listed in the $100,000 range, she recalls.
In that price range, it wasn't necessary. And you couldn't get any more money for the house.

5 Housing Trends In Spring 2012

Homebuyers are expected to get off the fence

Homebuyers are expected to get off the fence

Homebuyers waiting for prices to hit bottom may soon get off the sidelines, industry experts say.
We're starting to pick up on the purchase side. I don't think you'll go back to (the home purchase activity we had in) '06 anytime soon, but this is the best that we have seen in a while.
The price gap is closing between what sellers expect to get for their homes and what buyers pay. That's one reason home sales are improving.
As consumer confidence and rents rise, more renters will want to become homeowners, Smith says.
The trend already has started, according to a recent study by Kingsley Associates, a San Francisco-based real estate research and consulting firm. About 59.5 percent of the tenants surveyed in the study said they intend to renew their leases this year. That is the lowest rate since early 2009 on renters' intention to renew leases. The rate was 63.7 in the fourth quarter of 2010.
We still have a slow recovery, but I think we'll start to see additional sales.

5 Housing Trends In Spring 2012

Buyers face fierce competition with investors

Buyers face fierce competition with investors

Attractive mortgage rates, low home prices and rising rents make the current housing market the perfect opportunity for investors. When looking for bargains, homebuyers will continue to compete with investors.
This is true particularly at the lower end of the market and with first-time homebuyers, according to the National Association of Realtors.
One of the strongest recent housing trends: Many investors pay cash. These cash offers are an obstacle for buyers who need mortgages because sellers prefer buyers who can pay cash to close quickly.
Investors bought about 23 percent of the homes sold in January, according to the NAR's latest numbers. That's up from 21 percent in December, and that trend is not expected to shift this spring.
Rents are going up, and as long as there are properties at the level where investors can get the positive cash flow, they will continue to invest.

Should you spring into action this spring?

If you're waiting for mortgage rates or house prices to hit bottom, you may have delayed too long.
Among the housing trends you can expect to see this spring: Potential homebuyers will find increased competition when shopping for a home this spring, as more bargain hunters get off the fence. Investors also will continue to take advantage of the opportunity to buy low.
Rising mortgage rates will serve as a warning to borrowers who thought the low rates would last forever. More bad news: Some mortgages will cost more this spring because of higher loan fees.
Most of the good news goes to refinancers and underwater homeowners. Millions of borrowers will have the opportunity to refinance their mortgages through two government programs that make the refinancing process easier and cheaper.
The Federal Housing Administration, or FHA, reduced loan fees for these borrowers, and Fannie Mae and Freddie Mac removed many of the obstacles that prevented borrowers who were upside down from refinancing.
Here are some of the housing trends you should expect to see for spring 2012.

Mortgage rates rise but won't skyrocket

Many borrowers missed the record-low mortgage rates seen earlier this year, but they still have a chance to grab low rates this spring.
Mortgage rates have bounced from the bottom, and it's unlikely they'll drop back to record lows, but there's no need to panic. Mortgage experts don't expect rates to skyrocket anytime soon.
The Mortgage Bankers Association's latest forecast indicates that the rate on the 30-year fixed mortgage will average about 4.3 percent in the second quarter. That's up from the first quarter's average of 4.16 percent in Bankrate's weekly survey. But 4.3 percent would still be low, especially when you compare it to the 6 percent or 7 percent borrowers paid at the height of the housing boom.
The recent jump in rates comes as investors become more confident. Still, the picture is far from rosy, as nearly 13 million people remain unemployed.

Getting Your Home Ready To Put On The Market

Keep plans practical

Keep plans practical

Keep any planned changes to the house reasonable and in character with the home and the neighborhood.
Don't lie to yourself. If the house has areas that show wear, get that work done before offering the home.
Seek a second opinion from your agent or a potential agent. A real estate professional can advise you on what repairs or upgrades will give you the most bang for your buck.
The price of your house is going to determine what things you should do. One client spent $10,000 putting in hickory cabinets and granite countertops in the kitchen of a home that listed in the $100,000 range.
In that price range, it wasn't necessary. And you couldn't get any more money for the house.

Getting Your Home Ready To Put On The Market

Color your home neutral

Color it neutral

With paint, stick to neutrals, several agents say.
I have had people who painted some of their rooms and picked the colors themselves in shades of pink and purple. And it was more of a negative than a positive when they put their homes on the market.
Their mistake wasn't DIY painting but color selection. Opt for neutrals, which have a broader appeal.
Then consider the flooring. If the carpeting is old and stained, put in new carpeting.

Getting Your Home Ready To Put On The Market

Add square footage -- free!

Add square footage - free!

Ditch junk and clutter to make your house look more attractive and spacious.
"This is now a showcase," says Patricia Szot, immediate past president of the Dallas-based MetroTex Association of Realtors. "You are no longer living in it; you are showing it."
A couple of pro tips:

• Laundry room: Make it neat and orderly, Szot says. Your goal is to make it look like the room is plenty big enough for the job.
• Pantry: It's for food only, Ramsey says. Using the pantry for general storage screams, "Not enough cupboard space."
• Garage: If it's a two-car garage, make room for two cars, Szot says. For a lot of men, if the garage "looks small because of the clutter, there's an issue."

"And while you're decluttering, you're depersonalizing," Wiren says. "You really need the buyer to be able to picture your home as their home." A picture of your kids on the nightstand is "not a big deal," he says. But you don't want the family portrait gallery lining the hallway.

Getting Your Home Ready To Put On The Market

Prepare your home for sale

Want to be the seller who goes to market instead of the one who stays home? The difference might be a few of the things you do before you plant that "for sale" sign.
It's a buyer's market. Your house has competition, and that means you have to do some work to get it ready to sell. So, while your home looks great compared to the neighbor's foreclosure, it might not quite compare to that house a block over where, rumor has it, the owner clips the lawn with an electric razor.
You don't have to spend a ton of time or money. A few simple tricks can get you market ready in time for the start of the spring selling season. Especially if you start now.
Here are tips from top agents to give your home the edge.

Make it shine

Step one to getting your house market ready: Break out the cleaning supplies.
Give it a really good cleaning.
The problem: A lot of sellers might not have the same perception of 'deep cleaning' that a buyer would. For that reason, it might be worth spending a couple hundred dollars to have professionals come in and clean.
Two places where clean can be critical for buyers are kitchens and bathrooms. Having those rooms clean and sparkling can make a huge difference in the perception of whether a house is kept up or not.
Windows and baseboards are crucial. If you're not replacing carpets, have those cleaned, too. The potential outlay for a cleaning service and carpet cleaning is likely in the neighborhood of $300 to $500 total. It has a much greater impact than most sellers think.

How To Pay Off A Mortgage More Quickly

A lot of homeowners want to pay off their mortgages before the end of the loan term. This is especially true for borrowers who want to repay their home loans before retirement. There are a number of ways to accomplish a mortgage payoff.
The two easiest ways to put more money toward a mortgage are to set up automatic payments from a bank account or use the lender's website.

There are a number of ways to accomplish a mortgage payoff

For those who have a plan to pay off their loan, we will go out and withdraw the money from your account to make your payments … or you can go online anytime on our website.
Automatic payments can be made monthly, bimonthly or biweekly to match the borrower's employment pay periods, if that's the borrower's choice.

Extra money can be paid in other ways as well. Borrowers can add an additional sum to a scheduled payment, mail in an extra check between payments, call the bank's customer service telephone number, or even walk into a branch and arrange the transaction in person with a teller.

Loan must be current

Technically, what most homeowners think of as an extra payment isn't really a payment because it's not one of the scheduled installments. Rather, it's extra money applied to principal, called "curtailment" in bank parlance.
They're not really making another payment. They're sending in funds to pay down the principal.
Borrowers generally can apply extra funds to principal as long as their loan is current, meaning all the scheduled payments are up to date.
If a prior payment is late or has been missed or the loan is delinquent, the extra funds must be applied to make up that difference before additional principal can be paid.
The same isn't true for an escrow or impound account used for property taxes and homeowners insurance, however. A shortfall there can be paid in a lump sum or spread over a number of future payments, but it needn't be made up in full before additional sums can be applied to principal.

Clear instructions

Borrowers who want to send in extra money don't need to call the lender or loan servicer ahead of time.
There's really no reason to call and say, 'Hey, I'm going to do this.
That said, communication is crucial to ensure the additional funds are applied to principal and not to the next scheduled payment. Clear instructions are especially important if the borrower's intention might not be clear.

As long as you have a way of telling us either via a coupon or online or through the branch, you can be assured it will be done correctly. It's when you just send in a check and don't say what to do that issues can arise. We're doing our best to guess what you wanted.
Two situations likely to cause confusion: The borrower wants to pay an extra amount exactly equal to the scheduled payment, or the borrower wants to pay an extra amount right before the next scheduled payment is due.

Curtailment limits

Borrowers who want to apply a relative large extra sum to their principal -- perhaps because they've received an inheritance, bonus or other windfall -- can do so, but a few cautions are in order. Some lenders limit the amount that can be paid online to protect against fraud or a typographical error. Wells Fargo, for instance, caps online principal curtailment to $99,999 per transaction, in part to guard against customers accidentally trying to pay $100,000 instead of $10,000.
Another caveat is that the additional money can't equal or exceed the loan balance, according to Hugh Suhr, a spokesman for SunTrust Mortgage in Atlanta. A loan payoff figure is a moving target due to interest calculations, and thus it's best discussed with the bank in advance.

No money back

Here's one more tip: Borrowers who send in extra money by mistake might be able to reverse that error if they contact the lender with haste. But extra money sent in long ago generally can't be reapplied to current or future payments if, say, financial difficulties arise.
If it's within 30 days, it's typically not an issue. But if someone is coming back and asking for the last five years of curtailment, the answer is going to be 'no.'

Avoid these 6 errors with your open house

Never Say "Don't go in there!"

Never Say "Don't go in there!"
Preventing access to certain parts of their home during an open house is another common mistake sellers make.
Sometimes the seller doesn't want people to go in the garage because it's messy.
That's unacceptable.
Don't expect buyers to commit to purchasing your home if you make certain rooms unreachable to them.
Rent a storage room if necessary. Do whatever it takes to make every room in the house inviting.

The house has got to look its best. There are no excuses. Not in this market.