Home Buying

Can an Appraisal Impact My Home Purchase?

An appraisal is a valuation that your lender orders before giving you a mortgage to purchase a property.

It provides an independent assessment of what the property is really worth.  In the event you are unable to make your mortgage payments, and your lender has to sell the property, the appraisal represents the true value of the home and will inform them of the sales price.  The lending company also requires someone to physically see the property and establish if there are structural problems or flooding risks that may impact its current or future value.

You pay for the appraisal

In the case of a purchase transaction, the appraisal is ordered and completed after you and the seller have signed a sales contract.  The buyer will pay for the appraisal in advance.  Regardless of the outcome of the appraisal, this fee is nonrefundable. The lender will hire a third-party appraisal management firm to ensure the appraisal is independent, with little likelihood of bias in the report.  The property is inspected (with somewhat different criteria than a home inspection). The findings are then compared with similar properties in the same area.  After adjustments are made for differences such as the number of bedrooms and bathrooms and lot size, the appraiser comes up with a value.

Your real estate agent is also able to estimate the value of your property. He or she will have access to the same information that appraisers do, and an agent with experience should be able to come very close to the value submitted by the appraiser.  The lender, however, relies on the appraisal report, and that affects you: if the property is priced higher than its appraisal value, your lender is very unlikely to loan you the money to purchase it.

Of course, that also protects you, as you likely won’t want to pay more than the property is worth.

Content provided by MiLEND, Inc. 

Ensure Your Happiness with Your Locked-In Rate

Just like the stock market, mortgage rates fluctuate. They may move daily, or even hourly, and often significantly in response to global events.

When you are negotiating a mortgage, you can “lock in” the mortgage interest rate through an arrangement with your lender. The arrangement will specify a time period over which you can lock in at the current interest rate. Before you lock in your rate, you need to ensure the rate is one you are happy with not just for now, but for as long as you have the mortgage.

Because rates fluctuate, it can—and does—happen that after you’ve locked in, rates fall. A lock is a commitment on your part and your lender’s part to accept a certain interest rate, and it’s unlikely that you will be able to get it lowered once you’ve made this commitment through the agreement with your lender. On the flip side if the rates go up you lender cannot raise you rate during the lock-in period.

To be able to lock your loan, you must be either fully approved or close to being fully approved.  This is to protect the lender, because by locking in your rate, he or she is making a commitment to the investor who will ultimately purchase your mortgage.  If the lender can’t deliver on your promised mortgage, he or she will be required to pay a fee for the use of the money between the date the rate was locked and the date the investor is notified that the loan won’t be delivered. This can become expensive for the lender. Both you and your lender should respect the mortgage lock.

Lenders are unlikely to be able to predict rates in the future, and ethically they can’t—and shouldn’t—advise you on what will happen to rates. Everyone has access to the same market information; your lender has no more insight into rates than you do. Expect your lender to explain the process, but not to help you decide when to lock in.

Content provided by MiLEND, Inc. 

You Can Reduce Your Closing Costs, But Should You?

All of the costs incurred in the course of purchasing or refinancing a home are called “closing costs.” They include fees that you pay the lender, most importantly the origination fees, but other fees as well, such as appraisal, title, and recording fees.

Closing costs are usually paid from the borrower’s funds, but often you can lower them with seller credits. As well, your lender may agree to waive some of your closing costs. Sellers are often willing to cover some of your closing costs in exchange for a slightly higher purchase price, and lenders may be willing to collect less closing costs at the closing by charging a slightly higher interest rate.

Seller credits and trade-offs                                                                            

These may sound great, but note that a higher home price or a higher interest rate will cost you more in the long run. When you begin the prequalification process, consider these “benefits” but ensure you know the downsides.

Your real estate agent can help you decide the true worth of a sellers’ credit, while your lender can explain all the mortgage options available to you, including trading a higher rate for reduced closing costs. The decision, however, is yours.

Your down payment is also required at closing, and the amount of these funds (Down payment is not considered a cost) absolutely can’t be reduced by seller or lender trade-offs. Fortunately, you can use monetary gifts from close relatives to partially or completely reduce the down payment amount that comes out of your own funds, and you may also able to use approved government or other nonprofit down payment assistance programs. 

The qualified professionals at MiLEND are more than happy to offer free advice on how to avoid unnecessary costs. For over two decades, MiLEND has helped thousands of home buyers make their American dream come true. Their helpful, licensed loan experts will take the personal approach to getting you approved for a home loan, refinance, reverse mortgage, or any one of their other helpful loan products or services.  Contact MiLEND today