Do I Need To Sell My Home Before I Can Qualify For A New Mortgage On Another Property?

Every home buying situation is unique, but there are a number of buyers who qualify for a mortgage loan on another home, while they still reside in their first home. There are a number of reasons why people opt for a 2nd home. Their family might be growing and they feel the need for a bigger house. In some cases, people get a job transfer and have to relocate to a new home. The question here is- are you required to sell before you buy?

Things to Consider

The answer is not a straightforward yes or no as there are a number of factors that come into play. If you are in a strong financial position, you qualify and can afford your present residence as well as the proposed payment on the new home, then you will not have to sell the first home.

Even if you do qualify for a mortgage loan on a second home without having to sell the first, there are some other considerations you will have to take into account. When you plan on maintaining multiple properties, you will also have to factor in all the additional expenses such as:

  • Mortgage payments

  • Higher property taxes

  • Hazard insurance

  • Unexpected repairs

  • Others

Can You Rent Your Current Property?

There are different possibilities in this scenario as well:

If you do not qualify to carry mortgages on both the houses, you might have to rent the first property to offset your mortgage payment. In this scenario, the lender will then generally count only 75% of the total monthly rent that you will receive.

There is another aspect which has to be taken into consideration. Most lenders have a reserve requirement & equity ratio, and this can be a big hurdle in your path. In some cases, if you plan on renting out your existing home, you are required to have a minimum of 25% of equity to offset the payment with the rent that you will receive.

Without that large amount of equity, you’ll need a significant amount of money in the bank and will have to qualify for mortgage payments on both homes. If you do not qualify for both the mortgage payments, you will obviously have to sell the current house before you buy the new one. For more information about how the process works, contact ResMac Home Loans today.

 

What Do Appraisers Look For When Determining A Property’s Value?

Most homeowners are under the impression that the actual value of their property is determined once the appraiser conducts a physical property inspection. The fact is that the appraiser already has quite a fair idea about the value of the property even before they schedule the appointment to look at it.

The bright spot is that you don’t really have to worry about getting the place cleaned up in order to up the value of your property. Though a clean house will definitely make it simpler for the appraiser to clearly notice all the improvements, any “clutter” that you have around the house is not really going to affect the appraisal unless it is damaging to the structure itself.

Factors that Matter

The important things that will be addressed in the appraisal are:

  • Site- The location, topography, view, external factors, zoning, landscaping features, lot size and highest & best use

  • Design- Quality of the construction and finish work, any fixed appliances/defining features

  • Condition- The age of the structure, renovations, deterioration, additional features and upgrades

  • Health & Safety: Code compliance and structural integrity

  • Size- The Above-grade & below-grade improvements

  • Neighborhood- Does the property conform to the neighborhood?

  • Parking: Carports, garages, shops etc

  • Functional Utility: Is your property functional in terms of style & use?

Things to Focus On

The appraisers are going to look at things like the condition, overall design, upgrades, finish, functional utility, defining features, number of rooms, square footage and health & safety items. Ensure that all the smoke and carbon monoxide detectors are in working order.

This is important because 50% of weightage in the appraisal is given to the security factors in the property. The appraisal should be carried out by a licensed and qualified appraiser who is familiar with the neighborhood & the type of home that you are buying/selling/refinancing.

Note- For conventional loans that have originated on/after 1 May 2009, neither the homeowner nor the lender can decide which appraiser will inspect the property. The person will be chosen at random from a common pool of licensed & qualified appraisers. For latest updates and information, contact ResMac Home Loans today.

 

Renting vs Buying A Home

When you are choosing between buying a home and renting, there are a number of things you will have to take into consideration. This debate is a never-ending one and some people will swear that buying a house makes more sense from the perspective of an investment, while there are some who will say that renting is the way to go. There are definitely some tax advantages to owning real estate and you can potentially earn equity/ pay off the mortgage note after a certain number of years. Let’s take a look at the benefits of both:

Benefits of Renting:

  • The costs of acquisition are lower- Unless you are able to qualify for a zero down mortgage loan & the closing costs are paid by the seller, typically, you will invest around 3.5-7% of the purchase-price for the down payment & closing costs if you have an FHA mortgage. In case of a conventional loan that figure will be in the 13%- 23% range, in comparison to the cost of around 1 to 3 months of a rent payment.

  • Lower Qualifying Standards- FHA & some government-insured mortgage programs have much more flexible qualifying guidelines in comparison to most conventional home loan programs. But when it comes to paperwork, property management companies and most landlords do not ask for much

  • Freedom To Move – When you choose to rent, it’s also much easier to move once the contract expires. If you are new to a community, or have a job that requires you to relocate frequently, renting is a much better option

  • Lower Maintenance & Cost – When you live in a rented place the property management company will fix anything that breaks etc within 48-hours or less. You also don’t have to pay any property taxes, carry homeowners insurance or worry about rising interest rates

Benefits of Owning:

  • Dependent on HOA and county rules, you can have pets without paying hefty deposits

  • Choose the color of your walls

  • Have peace of mind security

  • Enjoy certain tax benefits

  • Have stability

  • Property will appreciate

In addition to this, your net worth increases and there is potential for earned equity. And so, both these options have certain advantages. The choice you make will be dependent on your specific situation. Contact ResMac Home Loans for more detailed information.

 

Understanding the Difference Between an Appraisal vs Neighborhood Listing Prices

Many homeowners wonder why there is such a big difference between their appraised value & the selling-price of other similar homes on their street. The key distinction lies in the purpose of these 2 evaluations and the people who are conducting them.

Appraisals

The primary purpose of an appraisal is to ensure that a third-party verifies the most-likely sale price of the property, based in its market value and condition. Typically, an appraisal is meant to be a very realistic determination of the value of that home if it were to be sold in its current condition in the current market. In addition to this, the appraisers have to follow the rules that are supposed to even out the subjective-process of deciding what the value of a home is. Appraisers look at factors like:

  • Location

  • The above ground size

  • The room and bathroom count

  • Style of the home

  • Amenities

  • Condition of property

  • Amount of time it takes for a particular home to sell

  • Whether values are increasing/decreasing/steady

Appraisers also look only at the comparable sales within a specific distance, usually 1mile except in the rural areas, & within a certain period of time.

Listing Prices

Listing prices are determined on the basis of very different factors- are set by interested & emotional sellers and influenced by a real-estate agent. When sellers list their homes, they aren’t held by any specific rules. In certain situations, they may take the amount they paid for the home, what they spent on improvements and add a profit.

Sometimes, they list their property based on the amount that is required to pay the closing costs, the real estate agents & cover the mortgage amounts. If a particular home is selling for a very low price, this is generally because the owners might have to move in a hurry and want to make their price very competitive. Foreclosed properties could also be listed at lower prices.

In some cases, asset managers may be making decisions from a completely different part of the country, which may explain the disparity in prices. And so, there are really no set rules when it comes to determining the actual value of your home. In the end, the opinion of the lender who is securing that particular property for a mortgage is what matters. For all types of mortgage-related information, contact ResMac Home Loans.

 

Five Myths About Home Values

When the economy is booming and home values are on the rise, homeowners rarely question appraisals too much. But in times of recession, when property values are on the downtrend, most homeowners & listing agents tend to question & pick apart appraisals. But the actual appraisal process has not undergone much of a change since the boom and bust in the housing space that took place between 2001- 2009. Take a look at 5 topmost appraisal myths:

  • I have put in $15,000 into a property very recently- Why is the appraised value not higher than that?”

It’s a misconception that every improvement carried out in a property will add to its value. Even with significant cosmetic repairs, there are times when the property value may be comparable to a foreclosure right next door, rather than the value of a new home that is a block away. The electrical, air and heating are priority, square footage and the number of beds and baths comes next while genuine cosmetic upgrades are on the lowest rung of the home improvement ladder

  • My home is comparable to some properties right in the neighborhood- but it’s being valued at much less”

If a homeowner is planning on selling a house that has added $150k in upgrades to the flooring, built-in cabinets and the kitchen, it might be much more beneficial to show that property in magazine ads or in an open house. The fact is that the homeowner might be stuck with a much lower appraisal (even lower than comparable properties right across the street).

This happens because the appraisers always use properties from that same neighborhood to first establish a value. In simple words, the seller ended up over-improving their home for that specific neighborhood

  • I just invested $50,000 in a pool- why does that not count for anything?”

Professional landscaping and pools rarely ever see a value-add that matches up exactly to the amount that has been spent on that improvement. This value is also largely based on the comparable sales in a particular neighborhood.

  • How can very similar homes a particular neighborhood appraise for vastly different values?”

This is a very common question that crops up for older neighborhoods where there may be drastic price differences for homes that are modeled similarly. Square footage and additional rooms might be the primary reason for a particular property appraising much higher than another.

When an appraiser determines the value of a property, the size, square footage, improvements, location, neighborhood amenities and market trends are taken into account. Contact ResMac home Loans, to understand more about how an appraisal works.

 

How Do Mortgage Companies Value A Property That Has Not Been Built Yet?

It’s obviously easier to picture the process of estimating value on an existing property in a neighborhood that has a history of home sales, but the task of determining the value on new construction projects does pose some challenges.

Appraisals on homes that haven’t been built yet generally require the contractor and home buyer to supply more documentation in order to get a more accurate estimate of the property’s value.

The main purpose of this article is to give an overview of the appraisal process for a home buyer that is building a home vs purchasing standing inventory.

For some, building a new home can be both exciting and overwhelming.  Watching a project transform from idea to completed home with a front yard, white picket fence and a custom red front door is a rewarding experience.

Even if you are paying attention to all of the information from the beginning, there are still several details that have a tendency to catch even experienced builders off guard.

Game time decisions have to be made as cabinets and corners line up differently than the initial drawing could show, flooring doesn’t match the wall colors, or the sun hits a window the wrong way at dinner time.

While the last minute updates may cost you more money, they might also have an impact on the value of the property.

What Does An Appraiser Need For New Construction?

Plans –

The plans or construction drawings are usually done by your builder or architect. It lays out the floor plan of your home, sizes of rooms and square footage of your home.

They should include a floor plan layout, front elevation, real elevation & side elevations, mechanical and electrical details.

Specifications / Descriptions Of Material –

A “Spec” sheet has the type of construction materials you will be using. For example, whether your home will be built with standard 2 x 4’s or 2 x 6’s.

It also contains the type of insulation, roofing and exterior products that will be used in the construction, as well as floors, counter tops and appliances for the inside dressing.

Cost Breakdown –

The document that breaks down all of the costs associated with the construction, including land, building materials and labor.

A lender can generally provide you with blank forms for the spec and cost breakdown if your builder does not have them.

Plot Plan –

Shows where your home will sit on the site, any accessory buildings, well and septic locations, if applicable, and the finish grade elevations and direction of the drainage.

Once the lender has obtained the above information from you, they will forward a copy to the appraiser. It is the appraiser’s job to determine what the future value of the home will be once it is completed, per your plans, specs & cost breakdown.

Even though an appraiser will use the cost approach in the appraisal report, it is not the value that will ultimately be used by the lender.  The market approach to value, which uses existing sales of homes similar in size, quality, construction and location is the most common approach that lenders want for new construction.

The more complete and detailed your plans, specifications and cost breakdowns are, the more accurate your appraisal will be.

Once your home is complete, the appraiser will be asked to go out and inspect the home. They will report back to the lender what they have found, whether your home was completed according to the plans and specifications originally given, and if the value is the same as originally given in the report.

Sometimes the value has to be adjusted due to changes that were made during construction which may have affected the value of the home.

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Frequently Asked Questions:

Q:  Where can I obtain a set of plans?

Most builders have basic plans they work from, and make modifications specific to their clients’ needs. When building a custom home, it’s generally a good idea to work with a reputable architect.

Q:  Is there a form I can use for the list of specifications?

Yes, HUD has a generic form that most lenders use and it will give the appraiser most of the details they need to complete your appraisal. Anything not listed on this form can be added by you separately on an additional sheet.

Q:  Can I use my contract with the builder for the cost breakdown sheet?

In most cases, the lender will accept the contract, however, they will want the builder to provide a cost breakdown to ensure that the builder has accurately bid your home.

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HOA Hurdles to be Aware of When Looking at New Properties

A HOA can have a significant impact on your decision to purchase a new home in a Condominium Project or a Planned Unit Development (PUD). When you plan on moving into a new housing development or a condo, you are required to sign-off the required HOA agreement that specifies all the rules of that development. When you are purchasing a home, the HOA is something that gets a little sidelined.

Its only when you actually move into your new home and settle in comfortably that you realize, a number of rules and regulations laid out by the HOA can be very restrictive. You might find that there are a rules you might not be able to adhere to. These are 7 things you should watch out for in the HOA agreement:

  • Home Businesses- If you plan on the working from home – maybe run a daycare center or your law office, if the HOA does not permit any kind of commercial activity in your residence, you will be compelled to look for office space outside

  • Restrictions on Animals- Some homeowners associations have a restriction on the number of pets you can have in your home, as well as the kind of pets you can keep

  • Clothes Lines- This seems like a very unlikely one. If you prefer to sun-dry your clothes, you will have to ensure that the place you live in has no restrictions around having clothes lines strung in the yard.

  • Nighttime noise or Nuisance Rules- Regardless of the lifestyle you follow, if you live in a place where there are time restrictions on playing loud music, you will have to fall in line with the rules

  • Limitation on Leasing-out your Home- A number of HOA’s requires that the units on the premises be owner-occupied. If you have acquired that particular home specifically as an investment, this will pose a problem for you

  • Patio Prohibitions- Some HOA’s also prohibit you from using patios to store boxes and bikes and you might also be required to dispose of any dead plants

  • Carpeting- Hardwood floors tend to carry sounds and a number of HOA’s require that home owners carpet a certain percentage of their floors. You will have to ensure that the carpeting is in all the right places

It is up to you to decide whether the terms that have been laid out in the HOA work for you or not. But it is important that you be aware of these restrictions before you buy any property. For more information, contact ResMac Home Loans.