Are You Sure About Value?
When valuing your home, don’t simply rely on a few houses that recently sold in the neighborhood. Just because Fred sold his place across the street for $450,000 (or because Trulia/Zillow estimated your value to be $435,000) doesn’t mean your home is worth the same.
Fred’s house is not a good sales comparable if he has:
- a pool (and you don’t)
- 4 bedrooms/3 baths (versus your 3 bedrooms/2.5 baths)
- a 2-car garage (to your carport)
- a newly renovated kitchen (versus your limited renovations)
Without doing your homework, you may be unable to sell your home for the price you want – or your loan entitlement could be much less on a cash-out refinance or reverse mortgage.
The lender will require an appraisal prior to closing – unless an appraisal inspection waiver is granted (such as when you may have substantial equity in your house).
In a conventional or government purchase mortgage, you can get pre-approved by a lender before getting an appraisal (so you shouldn’t spend $485 on an appraisal until you see the loan closing conditions). Whereas in a reverse mortgage, you generally cannot get pre-approved without the appraisal (so make sure your home value estimate is accurate before paying for the appraisal – otherwise you may be disappointed when your approved loan amount is far less than you had expected).
Analogous to lawyers being trained not to ask a question without knowing the answer, you, as a borrower, should be confident in your home valuation before paying for an appraisal.
TV Mini-Series: “The Borrowers” (Episode 1)
FADE IN:
♪ Ring Ring.
OMC: “Hello, this is Mike from Ocean Mortgage Capital – How can I help?”
CLIENT: “Hi – My Friend would like to take $50,000 of equity out of her home to buy a business. Can you tell us what her home is worth?”
OMC: “Well, we can help to arrange a cash-out refinance of her home, but she should really speak with a realtor or appraiser about valuing her house. Her realtor should have access to some sales comparables, and she could also check Trulia.com or Zillow.com to get a preliminary indication of value.”
CLIENT: “Thank you – I’ll tell her.”
OMC: “Okay – and if she concludes that the value would support her loan request, then I would be happy to pre-qualify her. I would need to ask her about her income to confirm she is comfortably able to make the required mortgage payments.”
CLIENT: “So then I should tell you that her husband lost his job recently, but he had been working with a good company for at least 15 years.”
OMC: “Well, her husband’s prior employment experience should help him with his interviews and support his job search. Hopefully he will land something soon. Is your friend presently employed to help support their mortgage request?”
CLIENT: “No”.
OMC: “Not only does your friend and/or her husband need to show they presently have ‘the ability to repay’ from their earnings, but they will also need to show that their income is likely to continue for the next three years.”
Here’s the Point: Instead of setting yourself up to default on a mortgage, make sure your income comfortably supports your ability to make your monthly loan payments and other obligations.
