This article defines the appraisal gap and outlines possible solutions for the home buyer to discuss with their realtor and loan officer before submitting an offer. Being prepared in the event of an appraisal gap puts the borrower in the best position to get an accepted offer or successfully close the purchase if a shortage arises.
by Christian Scully
I've found that the most helpful topics to discuss on BL+F are questions that I am often asked by either borrowers or realtors. Appraisal gaps have always been an issue, but their instances have exploded in the past couple years. Home values have grown massively nationwide. Buyers are often paying in cash above asking price and waiving all contingencies. This sets the stage for a home selling for greater than a licensed appraiser can value the property. The difference between the selling price of a home and its appraised value is called an appraisal gap or an appraisal shortage.
For example if a home sells for $250,000 and the appraiser values the home at $225,000 - there is a $25,000 appraisal gap. A typical purchase and sale agreement would state that the contract is contingent upon the home appraising for at least $250,000. When the buyer applies for a mortgage it will be based on the sale price of $250,000, which combined with their down payment will dictate their loan-to-value ratio. A conditional approval from the lender based on these terms would state that the loan approval is subject to the appraisal of the property at or above $250,000.
There are five important options for a buyer and their realtor to know about preparing for and solving an appraisal gap. The chosen path completely depends on the buyer's goals and finances.
Common Borrower Mistake: Why you shouldn't trust online mortgage interest rate ads or attention grabbing rate news headlines.
Interest rates are the subject for confusion, excitement, disappointment and panic. They truly touch on nearly every emotion. Online ads, sponsored-content articles and news headlines contribute to the confusion among borrowers. These publications and platforms don't make it clear that borrowers can't simply get the lowest possible rate. There are factors that impact their qualifying rate, and therefore borrowers should ignore the hype and learn from this article. We'll discuss what impacts a qualifying interest rate and how to be prepared for the application process.
by Christian Scully
As we witnessed in 2020, news headlines and online advertising are enough to stir up excitement and send borrowers shopping and applying for refinances. 2020 even saw some interest rates under 2%! What those news headlines often forget to mention is the $10,000+ in discount points you'd be paying to get a rate under 2%.
Sometimes borrowers will start a conversation with me by inquiring about the current interest rates. This is not a black and white question. Those advertised rates are generally the best rate you could possible qualify for under perfect conditions. However, in the process of applying for a mortgage, other details about the transaction are filled in. Those details can trigger a "loan level price adjustment" or LLPA.
LLPA's can add or subtract a small amount to the interest rate for various reasons. The most recent newsworthy example of this would be the half-point (0.5%) fee that Fannie Mae and Freddie Mac added to all refinances after 9/1/20, named the "Adverse Market Refinance Fee". In most cases, this would cause the interest rate to increase simply for the fact that the loan purpose is a refinance.
Other details that will affect a borrower's qualifying interest rate include their credit score. For example, if the borrower has a 580 credit score, their interest rate will increase more than if the borrower as a 660 credit score. If the borrower is applying for a mortgage on a primary residence, the interest rate will be lower than if it is a second home. Interest rates for investment properties are significantly higher. Interest rates for multifamily properties will be higher than for single family properties. Rates for 5% down payment will be higher than 20% down payment.
With more people investing in cryptocurrencies like Bitcoin and Ethereum, governments are beginning conversations on how the currencies will be regulated. Big decisions on regulation and taxation are to be expected in the future, but in the meantime decisions have been made on everyday uses like using cryptocurrency in qualifying for a mortgage. This article with explore the requirements set by US government agencies for using cryptocurrency in a mortgage transaction, and will discuss how a borrower can prepare their crypto finances for a mortgage application.
by Christian Scully
Cryptocurrencies have reached new levels of popularity with individual investors and institutions around the world. Amid a record breaking bull run, with currencies like Bitcoin and Ethereum gaining a combined total of nearly $1.5 trillion, it is estimated that over 15% of American adults hold some amount of cryptocurrency in their investment portfolios.
With decentralized finance, or DeFi, projects gaining more steam and attention, bringing real use cases to market, more than simply a buy-and-hold asset, the future of financial technology is poised for exponential breakthroughs in the next decade.
Since central governments have generally not yet made major policy decisions regarding regulation and taxation of cryptocurrencies, critics argue the high volatility and lack of current uses make cryptocurrency a poor investment.
When it comes to uses, some investors - while buying and holding crypto for long term gains - would like to at least know they can use their crypto gains for something as generic as buying a home. After all, what good are major gains if you can't use them?
This article will provide you with a list of eleven common mistakes that borrowers often make when preparing to applying for a mortgage or when in the middle of the application process. We will discuss the potentially negative affects that can be caused by each mistake.
by Christian Scully
Applying for a home loan can sometimes feel like a challenge, but the best thing you can do as a borrower is to be informed, prepared and to not make things harder for yourself. If you have already been prequalified for a mortgage, you are going to want to keep your current financial situation unchanged. Consider that you are building an image of yourself for your lender, you don't want to change that image before the lender can make the ultimate decision. If you are working towards getting prequalified for a mortgage, you want to avoid anything that will be detrimental to your credit history. If you are already under contract or in the middle of a refinance application, there are a few easy mistakes to avoid. No matter what point you are at in the mortgage process, make note of the following eleven things you should not do.
1. Don't open any new lines of credit or take out any loans.
Opening new credit accounts could have two potentially negative effects. First, if you open a new credit account you could be adding debt to your credit report. Additional debt could change the loan amount you qualify for. Second, opening new credit accounts will lower the average age of your credit accounts which could lower your credit score.
2. Don't apply for credit with many different lenders.
If you have applied for a credit card and been denied, don't keep applying for more cards thinking eventually one will approve you. Every time you apply for credit there is a hard inquiry on your credit report, potentially lowering your score. Applying to a few different mortgage lenders in an attempt to shop around for the best rate and terms is okay. Typically if you have a few inquiries from mortgage lenders in the same month it will be clear that you are shopping around and your score likely won't be impacted too much. However if you have 8 inquiries for credit card, 4 inquiries for auto loans and a few mortgage inquiries, it does not paint a very good picture of your financial situation, especially if those inquiries don't lead to actually opening a credit account. It shows lenders that you likely are not qualified for credit.
+ Better Note: Hard inquiries stay on your credit report for two years. If you are applying for a mortgage, your lender will likely ask for explanations if you have several recent hard inquiries on your credit report. They want to know that you don't have new debt obligations that have not yet been reported.
In this article we will break down the basic steps in the mortgage application process. Borrowers will deal with several people and so many documents. Read through these steps to have a good understanding of what to expect, and tips on how you can make the process efficient and what to do when you encounter any problems.
by Christian Scully
At this point you should have already been working with a loan officer, gone through the prequalification process, and been issued a prequalification letter that tells you, your realtor and any seller to whom you submit an offer how much you are qualified to borrow and what type of loan you will be applying for.
If you have not been through the prequalification process, then take a few minutes to start with the previous article on this topic here.
If you have been prequalified, congratulations! If you are still working towards prequalification, stay the path and keep working hard. The next step in the mortgage process is applying for the mortgage. If you are working with a good lender and they did a thorough prequalification, then you should already be in a good position to get through the application process almost effortlessly.
Let’s break down the mortgage application process so you know exactly what to expect and you can be prepared.
This article breaks down what first-time homebuyers can expect when starting the mortgage application process. The first step is getting pre-approved, and we will discuss the steps to pre-approval and how first-time homebuyers can be prepared, knowledgable and less stressed during this process.
by Christian Scully
There are two types of first-time homebuyers that I meet a lot in my work as a mortgage loan originator:
Some buyers reach out seeking a mortgage for the first time, excited and motivated to start shopping for their first home and have an expectation that they can simple fill out a quick application and be handed a couple hundred thousand dollars to go pick out the home of their dreams.
Others reach out absolutely terrified at the idea of applying for a mortgage, either based on bad experiences their friends have had, or general anxiety when it comes to finances or credit.
These two polar opposite attitudes when it comes to applying for a mortgage are both extremes. The problem with expecting the process to be super fast and easy is that they tend to be surprised at the need for some of the necessary steps in the mortgage process. This can cause frustration and even anger at times. And the issue with being frightened of the process and expecting a nightmare is that it causes unnecessary stress on the buyer and already begins the experience with negative attitude.
Let's take a very simple, quick overview of how to start the mortgage application process and hopefully help set your reasonable expectations and provide a clear path to your goal of purchasing a home. The first phase of the mortgage application process involves getting pre-approved for a home loan. This should be every first-time homebuyer's first step in the home buying process as well. Before you can start seriously shopping homes, you need to know if you are in a financial position to actually be approved for a mortgage, and know exactly the maximum price of a home you can afford, and what type of loans might be the best option for your needs and goals.
When we purchased our first multifamily home in Providence, RI in 2017, we decided to take advantage of a loan product called the FHA 203k loan. This type of loan helped us complete a couple of the major renovations needed on the house. Over the couple months of the mortgage application process and then for a time after closing, we learned the pros and cons of the FHA 203k. This article will give an overview of the FHA 203k loan program, pros and cons, tips and discuss whether or not I would recommend this type of loan to buyers.
by Christian Scully
What is an FHA 203k loan?
The FHA or Federal Housing Administration is a government agency that insures loans made through FHA-approved lenders throughout the US. FHA loans offer some great benefits. FHA loans are generally easier to qualify for, providing a great option with borrowers who are lower income, have higher debt to income (DTI) ratios and/or lower credit scores. For these borrowers, the interest rates are generally lower than conventional loan products. FHA loans also allow the borrower to make as little as a 3.5% down payment.
The FHA 203k loan is a type of FHA loan that also includes funds for renovations. The borrower closes on one mortgage, that includes enough to purchase the home and additional funds to cover any repairs or improvements needed. There are two types of 203k loan: the Limited and the Standard. The Limited 203k is the easiest way to go and can provide up to $35,000 in funds for any improvement that is non-structural. Anything beyond that and the borrower would need a Standard 203k loan. Let's look at some of the advantages of using a 203k loan.
Is the interest rate the most important thing when deciding to purchase a house and applying for a mortgage?
This article answers a commonly asked question by new borrowers when going through the mortgage process. Interest rates are similar to credit scores in that they often make no sense and change all the time for no obvious reason to the consumer. But when purchasing a home and applying for a mortgage, interest rates are not the most important piece of the puzzle. I discuss a simpler way to think about interest rates and how you should go about deciding whether or not it is a smart move to purchase a home.
by Christian Scully
So you've been pre-qualified for a mortgage, you have walked dozens of houses with your realtor and finally you've found the perfect house. Your realtor submits your offer and you nervously wait to hear the seller's decision. The call comes.
The seller selected your offer. You're under contract to purchase the home!
The next step is the mortgage application process. Yes, you already likely submitted some documentation and maybe even filled out an online application, but now all the pieces need to be put together by your loan officer, then processed and submitted to the underwriter, who will ultimately decide if your loan will be approved.
Along the way, your loan officer will be communicating with you about the interest rate. Interest rates are impossible to predict, but there can be trends. If rates are trending down, your loan officer might suggest holding off on a rate lock. But if you qualify for a great rate on any given day, it may be in your best interest to lock it in. Why not wait?
What if your loan officer presents you with an interest rate that is higher than you heard of on the news, read about on social media or otherwise expected? Is it still a smart move to purchase the home? I've been asked this question many times, and for me, it is a really simple answer.
One of the areas of most confusion for borrowers is that of closing costs. I find that borrowers don't know what they are for, how they are determined, if they can vary from lender to lender, and if there is any help available to pay for them. In this article I will break down the different types of fees that could appear in your "Closing Costs".
by Christian Scully
So you’ve got your credit score where it needs to be, you’ve saved your downpayment funds, you’ve been pre-approved for a mortgage loan, you’ve found your dream house and you are about to put an offer in… but wait! Closing costs! Do you have enough extra funds to cover them or will you need to roll them into your loan? Wait, you can do that?
Closing costs are exactly what they sound like: the costs associated with actually closing your loan and finalizing the transfer of property from the seller to you. They primarily consist of three things: loan origination charges, the settlement services that are needed to finalize your purchase or refinance and finally any pre-paid and/or escrowed funds.
Let’s look at both of these in a bit more detail:
Real Estate + Money
Thoughts, ideas, lessons-learned, inspiration, how-tos and more from a journey in small business, to owning and investing in real estate, helping borrowers navigate the mortgage process as a licensed loan originator, in an ongoing pursuit to fund the life and retirement that is chosen, not accepted.