Appraisals typically cost anywhere from $350 to $400. However, if the house is gigantic, multi-unit or in the boondocks, it could run more. The cost varies on property type, location and square footage.

think about why this is true. A lovely appraisal is the best reassurance that the lender won’t lose its pants on the transaction. If the borrower defaults, the lender still has a marketable property that can be sold to recoup its losses. All of which makes it understandable why lenders are so picky about appraisals. And with recent changes in the industry, the focus by lenders to obtain lovely appraisals is at the forefront.

The most common type of appraisal is the Uniform Residential Appraisal Report (URAR). It consists of interior and exterior photos and sometimes (depending on the age of the home), a complete cost breakdown of the property and comps (comparison sales of homes nearby that meet the proper criteria). These comps help determine the “market” approach. Each comp sale is adjusted in value when stacked against the home being evaluated (the five you’re buying or refinancing). Usually you will see a comp below the value of your home, in line with the value of your home, and a third above the value of your home. Kind of like the three bears. But if the valuation gets tricky, you can see fourth, fifth and sixth comps. The net value of the comps is estimated based upon the approaches used to come up with the appraised value of your property (meaning the appraiser performs some type of calculation that’s kind of like an average, but not necessarily a true average. Confused yet?)

URARs also, typically but not always, reflect a cost approach, which determines what the value would be based upon what's estimated it would cost to rebuild the home, less depreciation. The final estimated value of the home is then determined by using a melding of the market approach described above and cost approach (if applicable).

Lori Babb, Staff Appraiser for Mortgage Investors Group of Knoxville, TN, further explains comparables. “The best comparables are those similar in size, style (ranch, basement rancher, 2 story, etc.), age, and are close in proximity to the dwelling being appraised,” he explains. “Unique properties will typically need more adjustments than the average properties.”

So, say you’re Bill Gates and need to secure a mortgage on a $200,000 home (I know, it’s ridiculous, but I’m trying to make a point). He’s got the best credit profile a lender could imagine, yet the house appraises for $175,000. Deal or no deal? You better believe it’s no deal. The sales price will have to be lowered, or Mr. Gates will just have to pay money for his new home (you think he can afford it?). The point is, your average Joe won’t go ahead with the deal without a price adjustment, and he will be obligated to pay for the appraisal regardless of the outcome of value.

Dan Tyrell, principal of Knoxville area’s Tyrell Appraisal Service, Inc., has this comment about value, “When determining value of a single relatives house, beauty is over ‘skin deep’. Fresh paint, new carpet, new appliances, and nice landscaping all enhance the marketability of a house. Not so obvious items also impact the appraised value of a house. For instance older houses that have replaced plumbing/electrical systems, updated HVAC systems, newer roofs, replacement windows, etc. lower the effective age of the property which in turn increases the appraised value.”

There are other types of appraisals that are not as common, like an Automated Valuation Model (or AVM). In this case, different factors combine to ensure the value of the home (it’s worth $200K, but your loan amount is only $100K) and your unbelievable credit worthiness (800 credit score!), allowing you to skip purchasing a typical appraisal. You may also only be required to get a “drive by” appraisal, where the appraiser just inspects the exterior of the subject for size, looks at the lot and makes you wonder who that person standing by your mailbox is.

Most lenders control what appraiser is used to determine the value of your home. After all, it’s their funds on the line. The appraisal is such an important factor to the mortgage transaction – make sure you’re satisfied with the results. Your lender will make sure it is satisfied!

Who is the Fed? Well, it’s the Federal Reserve. & when the Fed cuts rates, it usually cuts the Fed currency Rate, which is the rate banks lend each other money. However, when the Fed lowers the Fed currency Rate, Prime Rate, the rate banks give their best customers, usually drops as well. Ok, that’s great. But what does that mean to the average person on the street? It means that anything that has an interest rate tied to Prime is directly affected by the Feds’ rate cut. Typically, these are short term loans. For instance: a credit card or a Home Equity Line of Credit (HELOC). In general, these rates decline when the Fed lowers rates. On the flip side, a Fed rate cut means your savings will perhaps not yield as much interest & your CD (certificate of deposit) won’t be at such a great rate. So, it’s not all nice.

You hear a bit lately that “the Fed is cutting the interest rate.” Maybe you’ve been considering a refinance, & you’re waiting to move forward till the Fed takes action again. But be smart about waiting & watching. A Fed cut doesn’t directly affect long term rates (for instance a 30 year fixed mortgage), but it does impact long term mortgage rates. The problem is the impact might not have the result you’ve been waiting for.

Another misconception is that mortgage rate changes occur in direct relation to when a Fed rate cut happens. In actuality, most mortgage rate changes, positive or negative, occur regardless of whether the Fed is actually meeting. That’s because the mortgage market anticipates what the Fed is going to do.

Why aren’t mortgages directly affected? Because mortgage rates are typically longer term rates & are influenced by buyers & sellers in the bond market. Daily movements in the bond market cause mortgage rates to modify. That’s why you might get a quote from a loan officer on Tuesday, & on Wednesday, your quoted interest rate has increased .125%. The Fed lowers rates to help stimulate the economy. Ultimately a healthy economy is nice for the real estate market. Jesse Lehn, Senior Vice President for Mortgage Investors Group, believes, “…a liquid real estate market is beneficial for the mortgage market & that keeps rates competitive.” So, when the Fed lowers rates, indirectly it can help mortgage rates, but there is no direct correlation.

A nice loan officer should have their finger on the pulse of the market, but again it’s a gamble. Remember to have a target interest rate in mind if you need to lock a loan but are watching the market. Trying to lock an interest rate on the day the mortgage rates have reached their lowest point in a year is like trying to get a royal flush in poker. It happens, but it’s not a realistic objective. It means you were lucky. stick to your home financing goals & consider the big image, & you’ll be fine.

In the mid 1990’s, the mortgage industry saw the credit score and its predictive power to evaluate a borrower’s ability to repay a mortgage step into the limelight as three of the most indicative factors for loan approval. After conducting statistical check after statistical check, Fannie, Freddie and Ginnie, the 3 big lending institutions, mandated that the credit score should be used in conjunction with manual underwriting to evaluate loan approval. Not long after, automated underwriting systems (AUS) were developed that expedited and streamlined the underwriting method even further for lenders. A loan officer today basically inputs a borrower’s key information into the preferred underwriting automatic engine, such as his/her credit score, income, amount being borrowed, money reserves, employment and housing history, and the value of the property. A response is returned by the underwriting engine recommending approval or denial for the loan.

If your loan receives a denial from an AUS, the buck doesn’t necessarily stop there. Life happens to people, and oftentimes it’s going to take a real live person understanding the nuances of a file to make an underwriting decision. That’s when your lender may suggest submitting your file to underwriting for a manual review. After all, not everything in life can be automatic, right?

“The most typical reason they see a file submitted to us for manual underwriting is for either no credit score or an error reported on a credit report,” reflects Patricia Haynes, onsite Government Underwriter at Mortgage Investors Group. “For instance a judgement that doesn’t belong to the borrower. Maybe it’s Dad’s judgement reflected on the son’s report because Junior and Dad have the same name. That’s when I can overwrite an AUS decision because i've the documentation to support my decision to do so in front of me.”

A perfect scenario for a physically underwritten file would be someone who has no credit scores. No credit scores? Yes, it is possible. I’ve had customers who, being old school and always having paid for everything in money, had rarely established traditional credit lines that reported to credit reporting bureaus. In a case such as this seven, I had to submit non-traditional lines of credit to underwriting, something a machine can’t evaluate. This means I had my customer bring in bills he had paid on time for the past year to create a credit history. Typical ones used are automobile insurance, utility bills, cell phone bills and cable bills. You can expect to have to provide 3-4 different trade lines if you haven’t established a traditional credit history and score.

Another very common reason to submit a loan for a manual underwrite is when your customer’s credit score is below 620 and gets an AUS denial. If this is the case with your loan, be prepared to provide more than average documentation about your credit history, as well as written explanations as to why your credit score has suffered recently. Maybe two years ago you had a financial meltdown due to a medical illness, but in the last twelve months, you can prove you are back on your game and have been repaying debt. However, your credit scores haven’t exactly caught up with your actions. An underwriter is going to piece together the different aspects of your file and see if it makes sense. Your home lender should be able to review your file and guide you as to what documentation an underwriter will want from you to grant you loan approval.

Naturally, if your credit score is low and you have very little explanation for your state of credit affairs other than you failed to pay your bills on time, don’t hold your breath for loan approval. An underwriter can see through smoke and mirrors. After looking at files as long as they have, they can basically sniff out a loan that has merit from the ones that are risky.

So, even as our world gets more and more automated every day, it’s lovely to know that you can’t replace genuine common sense, even in the mortgage industry. and it’s lovely to know that you can plead your case for credit worthiness to a real live human being.

I saw a cartoon the other day that was funny, but also sad when you think about it. It showed a couple sitting across from a mortgage lender, and the caption read, “We’re here to apply for a tank of gas.” With increases in prices for just about everything, it gets more and more difficult to stash away a nest egg for a down payment. And much every loan requires some part of down payment, even if you get a 100% financing loan. After all, you still are generally going to be required to put down some earnest money on your contract and in most cases, pay for an appraisal up front. You may have been trying to save it up on your own, but it may be time to accept some help from your relatives.

Most loan programs, be it Conventional, FHA, VA or Rural Housing, need the borrower to pay for something. In particular, FHA and Conventional home purchases need a maximum of 3% to come out of the borrower’s pocket. If you're doing a Conventional loan, you still can’t receive a gift for your 3% down payment, but you can use a gift to help with closing costs. However, FHA will permit your source of down payment to be a gift. So, if you find yourself a bit short on funds, you may need to ask someone to gift you the down payment or closing costs (or if your lucky, and it’s allowed – both!).



All lenders are particular about just who can give you a gift for your down payment or closing costs. much across the board, the gift must be from a blood relative. You may have to prove that the gifter is a relative thru birth certificates, christening records, etc. bizarre but true. Conventional loans will also permit an employer to give you a gift. But in any case, the most important factor is that whoever is giving the gift does not expect to be paid back. A certification to that effect will be required to be signed by the donor. Otherwise, it’s a loan, now isn’t it? And as a responsible lender, we’re going to include that payment in your debt to income ratio, and we’ll probably need a bunch of documentation to prove the terms, etc. So, make sure it truly is a gift.





As of the date I’m writing this piece of writing, FHA will permit for down payment assistance programs, such as Nehemiah or Ameridream. Lenders view these products as “gifts” in a sense. they are basically seller concessions funneled through the down payment assistance channels. However, by the time this article is published, they may be null and void. It’s currently being reviewed and could go away. Or it may still be there, but just know it’s under review.



Lenders are particular about how the gift money reach the closing table. If you deposit the gift before closing, you have to show it coming out of the donor’s account and depositing into your account. It’s a lot of paper to collect. The easiest method is for Grandpa or your Great Aunt to just send a cashier’s check payable to you and your title company to the closing table. Smoother, quicker, simpler.

Gifts are a wonderful thing, and a gift of a down payment is a useful gift. After all, I think it’s safe to say that homeownership is eight gift that keeps on giving, wouldn’t you?

According to Wikipedia, the definition for a white elephant is “a valuable possession which the owner cannot dispose of, but whose cost (particularly of upkeep) exceeds its usefulness.” Hmmm. Sounds like some of the higher priced homes they hear may be sitting on the market a little bit longer than usual. According to the Knoxville Area Association of Realtors (KAAR), the number of homes valued at $500K+ which sold in May 2008 was 34. But there were 205 new listings.



Ok, so I have to give you a little bit of history about the origin of the phrase white elephant. It has nothing to do with mortgage lending, but it’s a good information nugget to know. Per Wikipedia (yes, again), in the tales from the Buddhist scriptures, Buddha’s father dreamt of a white elephant giving her a lotus flower on the eve of Buddha’s birth. Thus, in Southeast Asia, it became a status symbol to own a white elephant (basically a requirement if you were some type of royalty). However, due to being sacred and all, the owner couldn’t have the white elephant actually do any work or labor to offset its keep. Ever wonder how much food an elephant can consume a day? Think of the tidy up after it eats! You not only get to feed the beast constantly, but you also have nothing to show for it when you’re done. You get the picture.



So, my analogy of there being a few white elephants in the real estate market right now is due in part to the jumbo rates not being so hot as of late. Loans below $417,000 are sold into mortgage backed securities. But jumbo loans are sold into private backed securities. and unfortunately due to the debacle in the mortgage industry that occurred in markets such as Florida, Nevada and new york (where a lot of loan sizes are above $417K), there’s not a great appetite for the jumbo loan. It’s kind of like jumbo loans are liver and spinach on the menu. A few people will buy that stuff, but it’s not as popular as the cheeseburger.

So what to do if you need a jumbo loan? Make sure you work with a lender who knows their stuff and can present you with options. Adjustable rate mortgages (ARM) may suit your needs as long as they are fixed for a decent amount of time and won’t paint you into a corner. An ARM may buy you time to refinance at a later date when the market calms down. You might also be able to wrangle a first and a second so the first loan fints under the conforming loan size umbrella and the second part of your financing is at a smaller loan amount with a higher interest rate. be smart and make sure your lender is smart. and if you’re selling your home, sit tight. These homes are moving, however it might be at an elephant’s pace. Don’t fret, though. An elephant’s top speed can reach 25 mph.

"In order to promote the production of more affordable new housing units for very low, low and moderate income individuals and families in the state, to promote the preservation and rehabilitation of existing housing units for such persons, and to bring greater stability to the residential construction industry and related industries so as to assure a steady flow of production of new housing units…"

Many times, people have heard of THDA and are confused, thinking that THDA is a certain loan type. In fact, it’s lending agency. All THDA mortgages must be insured by private mortgage insurance, FHA, VA or RECD And as these loans are intended for low to moderate income families or individuals, there is a income limit and acquisition cost limit. Also, you must be a first time homebuyer unless your home is in a targeted area.

Why is THDA so fantastic for a first time homebuyer? Well, it comes down to money. THDA offers a below market rate and will allow up to 100% financing. Have you been reading the papers lately? It’s not so easy to find 100% financing these days. Unless, that is, you’re a first time homebuyer. It also has programs that allow for down payment assistance via grants from certain approved agencies (if your loan type requires a down payment). If you have satisfactory credit and the home you wish to buy meets THDA’s standards, then you’re in business.

All THDA mortgages are 30 year fixed rate loans, so you needn’t worry about finding yourself with an ARM loan (adjustable rate mortgage) and a new payment you can’t afford in 3 years. And THDA allows lenders to only charge customers a standard 1% origination and .25% discount fee. It also closely monitors fees associated with the loan. THDA really looks out for the best interest of the first time homebuyer. If you are eligible for a THDA loan, you can feel pretty certain that an unscrupulous lender can’t take advantage of you because THDA won’t let them. For so many people, buying a home is pretty intimidating. THDA takes away the uncertainties a buyer faces with its guidelines and lending practices.

If you do apply for a THDA loan, be prepared to document your credit worthiness. THDA loans require slightly more documentation than your average loans because of the uniqueness of its product. In order to offer more, THDA asks for more – ensuring you qualify for its pretty awesome program. Sounds like a fair trade, if you ask me.

What are the disadvantages of a THDA loan? Not many. They do have a federal recapture tax if you sell your home within the first nine years of owning it. But it sounds scarier than it really is. I’ve heard that only about 1% of THDA customers actually pay this tax. That’s because a bunch of really great things have to happen to you in order for it to actually apply to you. And if those great things happen to you, paying the recapture tax won’t matter much to you anyway. I’ve been in the business for 16 years and have only heard of one person actually having to pay one. He graduated from medical school and his income when through the roof. His property was sold above market value than for the area because it was adjacent to some property that a huge retailer wanted to purchase. Again, good things have to happen to pay the recapture tax. So, you shouldn’t be afraid of it.

More people need to hear about and take advantage of the THDA loan programs. It’s such a great product and really helps the community and the housing industry. If you’re a first time homebuyer or think you’re in a targeted area, make sure you ask about THDA to see if you would qualify for a loan. You won’t regret it!

By: Kristin Abouelata - Home Loans

It’s not very often that a borrower takes into heavy consideration what his loan to value is when shopping for a loan. In fact, if the subject is brought up by the customer, it’s mostly in relation to avoiding paying monthly mortgage insurance. But sometimes, a loan to value can affect even more aspects of your loan – like pricing and approval!

What is loan to value? Well, it’s exactly what it says. The loan amount compared to the value of the home you are buying or refinancing. For example, if you are buying a $100,000 home, and your loan amount is only $50,000, your loan to value or “LTV” is 50%. It’s also very common to refinance a home to obtain a lower LTV and drop mortgage insurance that was before required.

Different types of loans have different minimum requirements for LTV’s. With primary residence purchases, for instance, an FHA loan can have as high as a 97.75% LTV (soon to change to 96.5% in 2009). A conventional loan can have as high as a 97% LTV (but more common is 95% LTV). VA and Rural Housing loans can have 100% LTV’s. People who have cash to put down on the property they are buying and financing with a conventional loan oftentimes try to amass 20% of the purchase price in order to avoid mortgage insurance. Mortgage insurance is required when your LTV for a primary residence is above 80% and is issued by independent mortgage insuring companies like Genworth Financial or PMI. Fannie and Freddie, the big purchasers of conventional loans, will require one of these or other approved companies issue mortgage insurance unless the loan has an 80% LTV. And if you’re refinancing the home you live in? The whole grid of acceptable LTV’s changes for the most part, with a few exceptions. And furthermore, if you’re talking about investment properties, it’s another can of worms.

But when else does LTV mean something? Consider when a loan specialist prices your loan. Oftentimes there are pricing differentials based upon the loan to value. For instance, if you carry mortgage insurance and your LTV is 85.01% or higher, you might actually get a better interest rate than if you had an 85% LTV (but don’t get too excited because your monthly mortgage insurance will be higher). Or if your LTV is 60% or lower, you might also get a better interest rate. If you are close to tipping the scales on one of these ratios, it may be to your benefit to ask your loan specialist how close you are to a pricing break one way or another. You’d be surprised to find out it might change your mind as to how much money you decide to put down on your loan.

And guess what else? A low loan to value may be the difference between loan approval and loan denial. Why is that? Because if you are investing enough of your own money into the equity of a property, chances are you won’t default on the loan. And if you do, it’s probably a last recourse. Not to mention, the lender who holds the note won’t lose money because there is enough equity in the property to cover foreclosure costs, re-sale costs and any value loss from an upside down market. The lender is covered. So, the lender will consider the loan less risky and a higher debt to income ratio is tolerated when reviewed with a high credit score.

By : Kristin Abouelata - Home Loans