PAM DENT

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Adjustable Rate Comparison

An Adjustable Rate Mortgage (ARM) is not as common as a Fixed Rate (i.e, 15 or 30 Year Mortgage), but an ARM may be a better choice for a homeowner who knows they are going to stay in the home for less time than the break even point.

An ARM might easily be 1/2% less than a fixed-rate during the first period of the loan, which can reduce the monthly cost of housing compared to a fixed rate.

The actual rate of an ARM can go up or down during the life of the loan, depending on an independent financial index. If the index rate is higher on the anniversary of your mortgage, the rate of your ARM could go up. But if you believe that rates are going to trend down during the time you own the home, then an adjustable rate could be to your advantage.

A mortgage financial advisor can provide you with a comparison of an Adjustable Rate vs a Fixed Rate to estimate when a Fixed Rate would have been a lower way to finance. There is a breakeven point in terms of months and years.

The ARM may be a better choice for the homeowner who knows they are going to stay in the home less time than the breakeven point. But if you plan for this to be your Forever Home, a Fixed Rate will likely be the better choice. If you’d like a recommendation, please let me know.

 M/p>

Filed Under: Blog, Information for buyers, information for home owners, Mortgages Tagged With: information for buyers, Mortgages, Tips for Buyers

When a Home Appraisal is Low

Lisa Sturtevant, Chief Economist for the Virginia Association of Realtors, has recently given us an overview of various market conditions affected by low home appraisals.  Can a low appraisal derail home buyers?

A home appraisal is an evaluation of a home’s market value based on comparable recent sales and sometimes recent listings in the neighborhood. Appraisals are required by a lender to protect both the lender and the buyer and to help to ensure that the buyer is not borrowing more than the home is worth. In hot housing markets, like the one we have been in for nearly a year, it can be challenging to accurately appraise the value of a home. Different appraisal values and below-offer appraisals can be confusing for home buyers and sellers and can sometimes prevent a successful transaction.

Different Methods, Different Values

An appraisal is typically conducted by a licensed real estate appraiser at the request of a lender or borrower. Appraisers generally use data on the prices of comparable homes sold in the last three or six months, or sometimes over a longer period. However, in fast-paced markets, where prices are rising rapidly, looking back at past home prices might not be a good indication of current values. It is important in this busy housing market that appraisers are not only using data on closed sales, but are also using data on pending sales and listings. Automated valuation models, or AVMs, have been a popular way for consumers to get an immediate assessment of their home’s value. These AVM values can also sometimes be used in refinance applications. AVMs collect data from multiple listings services, along with data from public records, to compare recent sales and list prices and generate a value for a particular home. There are differences in the methodologies in these AVMs, including the types of data used, how frequently the data are updated, and the number of comparables used in the estimate. These differences in data and methods can result in different home value estimates. (I plugged my home address into five different AVMs, and the difference in estimates was more than $100,000.) Because the housing market is so fast-moving, it is important that the data they use are updated very frequently. These public-facing AVMs are popular with consumers, but they can also provide misleading information and result in disappointed (or pleasantly surprised) homeowners when a licensed appraisal is produced.

Appraisals Below Offer

In this frenzied housing market, bidding wars and offers over list are common. When the home appraises at the contract price, the deal can go off without a hitch. However, appraisals below offer can throw up a roadblock to the purchase. While there are stories about buyers losing out due to a low appraisal, the data suggests that it is very uncommon for low appraisals to completely derail a transaction. According to Fannie Mae, an estimated 8% of appraisals came in below offer price in 2017. Zillow estimated that 10% of deals that fell through in 2018 did so because of a low appraisal. More recently, the National Association of REALTORS® reported in August 2020 that appraisal issues accounted for less than 1% of real estate transaction issues. Despite the fact that appraisal issues seem to be relatively uncommon, homebuyers that are worried about a home not appraising have increasingly been waiving appraisal contingencies in their offers. Nationally, Redfin estimated that about 20% of winning home offers last summer had waived the appraisal contingency. According to a survey of Virginia REALTORS®, in March 2021, 37% of REALTORS® said that it was very common for buyers to waive the appraisal contingency to make their offers more competitive. For some buyers, waiving the appraisal could be problematic down the road. For others, including those using an FHA or VA loan, an appraisal contingency is not an option.

Helping Buyers and Sellers When Appraisals Come in Low

There are several steps REALTORS® can recommend to buyers and sellers if an appraisal comes in lower than expected: REALTORS® should remind clients that AVMs are not meant to serve as a formal appraisal and that for most transactions, a lender will require an appraisal from a licensed real estate appraiser.
Appraisals should include data not only on recent sales, but should also take into account homes that have recently gone under contract and homes currently listed for sale. The fast-paced market means that home prices six or even three months ago are not necessarily a good indicator of current home values. Buyers, sellers, and lenders can request a review of the appraisal to see if there were any inaccuracies in the analysis. If the appraisal comes in below an offer, buyers could have the option to increase the down payment to make up the difference or take some of the money set aside for a down payment to close the appraisal gap. It is also possible that a low appraisal is a sign that the offer price really is above the home’s true value and that the smartest thing for the buyer to do is to step away from the deal and move on to the next home. Having a REALTOR® who can provide sound advice on market conditions will be a tremendous value to buyers in this situation. *Information as of 07/21/21

Filed Under: Blog, Information for buyers, information for home owners, Information for homeowners, Information for sellers, Mortgages, Uncategorized Tagged With: Mortgages

A Thanksgiving Gift From Fannie and Freddie

Fannie Mae and Freddie Mac have given overextended borrowers a Thanksgiving present.  The mortgage giants have temporarily suspended foreclosures through January of 2009.  They have directed their loan servicing organizations and attorneys to suspend foreclosure sales and evictions on occupied single family homes.  This has been implemented as support of the modification program which was announced on November 11 and is due to begin on December 15.

Inman News has published an article going into more detail on these new developments.  According to the article “Fannie’s streamlined modification program is aimed at the highest risk borrower who has missed three payments or more, owns and occupies the primary residence, and has not filed for bankruptcy. The program creates a fast-track method for getting troubled borrowers into an affordable monthly payment through a mix of reducing the mortgage interest rate, extending the life of the loan or even deferring payments on part of the principal. Servicers have flexibility in the approach, but the objective is to create a more affordable payment for borrowers at risk of foreclosure.”

This new development should offer a chance for many borrowers to keep their homes and avoid foreclosure.  According to Inman Freddie Mac expects to approve workouts on 84,000 or an estimated 140,000 who are delinquent on Freddie Mac owned mortgages.

To read the article click here.

Filed Under: Blog, Foreclosures, Mortgages, Real Estate Tagged With: Fannie Mae, Foreclosures, Freddie Mac, Mortgages

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Contact Pam

Pam Dent
Phone: (434) 960-0161
Email: [email protected]
Gayle Harvey Real Estate Inc.
198 Spotnap Rd, #C-5,
Charlottesville, VA 22911


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