Tag: fha appraisers

Property Inspection Waiver

Fannie Mae Easing their Standards

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LOAN NOT APPROVED! This is the last thing a potential buyer wants to hear from a bank when trying to purchase a home, but now with Fannie Mae easing the financial standards of the debt to income (DTI) ratio. The DTI will be raised from 45% to 50% on July 29. What determines your DTI ratio? DTI is a ratio that compares your gross monthly income to your monthly payment on all of debt accounts. Included in this is your monthly credit card bills, auto loan payment, student loan payments, etc., and the monthly projected payments on the new mortgage. A $6,000 household monthly income and $2,500 in monthly debt payments, your DTI is 42 percent. Lenders use this ratio to evaluate your current debt load and to see how much you can responsibly afford to borrow. Less debt equals more borrowing power.  If you are loaded down with monthly debts, you’re at a higher risk of falling behind on your mortgage payments…this is not rocket science.

Researching data that spanned nearly 15 years, Fannie Mae’s researchers analyzed borrowers with DTIs in the 45 percent to 50 percent range and found that a significant number of them actually have decent credit and are unlikely to default on their home loans. Significant enough to raise the ceiling and stick their neck out just a little bit more for buyers. Lenders are excited about the policy change giving those buyers just over the 45% threshold a chance in the marketplace. All applicants still need to jump through the multitude of hurdles when it comes to Fannie Mae’s underwriting criteria. The criteria entails down payment, credit history, income, loan-to-value ratio and a mountain of other financial criteria.

The largest population rejected because of high DTI ratios are the Millennials, who often stretch to pay their rent early in their careers. Millennials are the generation born between 1980-2000, which means that the bulk of Millennials are entering the prime home-buying age. They are a new targeted demographic with a lot of marketing being angled toward them in an attempt to attain their buying power: could this expanded ratio correlate with the Millennial?

Millennials are the demographic group helping Baltimore City gain population for the first time in a half century. Harford County is having a more difficult time attracting this market sector: Millennials are looking for mixed use communities, transportation, dining and shopping opportunities. Baltimore County also has tried to cater their communities around this sector of the population.

Regardless of what age or demographic you may lie in, Fannie Mae may not be your only option if your DTI is above 45% or even 50%. As of 2016 FHA (Federal Housing Administration) guidelines maximum debt to income ratio of approximately 55% with compensating factors. FHA does have a major drawback, it requires the borrower to keep paying mortgage insurance premiums for the life of the loan, well after the risk of financial loss to FHA has disappeared.

Having a hefty amount of debt, whether it be from student loans or shopping sprees, may not deter you from being a homeowner with the added help of Fannie Mae increasing the DTI ratio. With the decision of easing the financial standards of the DTI ratio to increase a broader base of buyers I hope it comes with an increased amount of caution for the future of the housing market. As an appraiser for properties in Baltimore County, Baltimore City, Harford County, Howard County, Cecil County, Carroll County and Howard County during the housing crash when the easing of requirements regarding lending money did not bode well I remain watchful on the recent decision for the broadening DTI. The housing market crash, which started in 2007 should be a constant reminder and lesson for the easing of standards and what sort of repercussions it could bring.

rehab loan

Conventional Renovation/Rehab Loan

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A prior article noted the characteristics of the FHA 203K but there is also a renovation loan with conventional financing known as Fannie Mae Homestyle Renovation. This is a conventional or non-FHA insured loan for both home buyers and home owners needing funds to rehab or remodel a property. A Homestyle renovation loan can be used to both purchase a property or refinance a property already owned.

The HomeStyle® Renovation Mortgage allows you to buy a home and repair or improve it with just one loan. You can also use it as a refinancing tool to refinance an existing mortgage and borrow funds for the improvement or repairs to the home you currently own. Funds used for renovation under this program are capped at 50% of the completed value of the home. The loan
amount is based on the “as-completed” value of the home rather than the present value.

The HomeStyle Renovation (HSR) mortgage provides a convenient and economical way for borrowers considering moderate home improvements to make repairs and renovations with a single-close first mortgage, rather than a second mortgage,home equity line of credit, or other, more costly methods of financing.

Renovations must be completed by an approved, third-party contractor. You cannot use a renovation loan to do your own remodeling. You will make full, principal+interest payments both during and after the renovation. Renovation must be completed within 6 months of the closing date, and you cannot use the program for renovations already in progress. These are standard underwriting guidelines for conventional renovation mortgages. They are valid only for primary residences and 2nd homes.

Fannie Mae sets the maximum loan amount for conventional loans each year. The minimum loan size is $50,000. Funds for the renovation cannot exceed 50% of the estimated completed value of the home. Renovation cost must be documented by a fully executed third-party builder contract.

As noted in the prior article the standard FHA 203(k) program, the borrower hires a consultant to assess the construction plan and to perform an inspection before each draw is made. A “draw” happens when a portion of the money is disbursed to the contractor. Borrowers have up to six months to finish the project and are allowed up to five draws. The HomeStyle program does not require a consultant to monitor the work, only an initial and final inspection.

Borrowers must choose his or her own contractor to perform the renovation. Lenders must review the contractor hired by the borrower to determine if they are adequately qualified and experienced for the work being performed. Plans and specifications must be prepared by a registered, licensed, or certified general contractor, renovation consultant, or architect. The plans and specifications should fully describe all work to be done and provide an indication of when various jobs or stages of completion will be scheduled (including both the start and job completion dates).

Those who don’t have great credit should probably opt for an FHA 203(k). Most Fannie Mae HomeStyle lenders require a credit score above 660. To get the best rate on a HomeStyle mortgage, borrowers need to have a minimum 740 credit score.

When looking to update that “fixer-upper” purchase or update your existing home be aware of all the programs available to you, it could expand your options when it comes to achieving your real estate goals or updating your existing home!

Baltimore harbor

FHA Appraisals

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FHA Appraisals

FHA appraisers perform many of the same functions as appraisers for conventional loans, but with a few extras.

Since FHA loans are government-insured and designed to provide safe housing, there are specific things that FHA appraisals must examine for the home to meet loan program guidelines.

fha-appraisalsWhen inspecting a property with FHA financing, either as a purchase or a refinance, there are areas that may need correction prior to the loan closing. According to HUD, to meet the FHA criteria, a property must be free of hazards that could affect the health or safety of the home’s occupants. A home may still be accepted if identified hazards are properly corrected. A lack of general maintenance or a run-down appearance is acceptable and won’t need to be repaired as long as it does not jeopardize the safety or structural integrity of the home. For example, damaged drywall, worn counter-tops, missing bathroom tiles, poor workmanship, and damaged or missing interior doors are all cosmetic issues. Structural defects that are not acceptable include cracks in the foundation, a sagging roof or floors, wood deteriorated to the point that it needs professional repair, or grading that is not adequate enough to drain water away from the house. A leaking or worn-out roof must be repaired or replaced. An appraiser must examine the condition of the roof from the attic to spot any holes in the roof or water staining.

Typically the most common repair for FHA appraiser inspections is the correction of chipping and peeling paint in homes built prior to 1978. Approximately three-quarters of the nation’s housing stock built before 1978 (approximately 64 million dwellings) contains some lead-based paint. When properly maintained and managed, this paint poses little risk. However, 1.7 million children have blood lead levels above safe limits, mostly due to exposure to lead-based paint hazards.  Every Purchaser of any interest in residential real property on which a residential dwelling was built prior to 1978 is notified that such property may present exposure to lead from lead-based paint that may place young children at risk of developing lead poisoning.  Lead poisoning in young children may produce permanent neurological damage, including learning disabilities, reduced intelligence quotient, behavioral problems, and impaired memory. Lead poisoning also poses a particular risk to pregnant women.  So chipping/peeling paint is a major issue when the appraiser performs the inspection of a property. In an effort to correct all areas prior to inspections check interior and exterior painted surfaces: window trim, sills, frame, doors, thresh holds, walls and railings are some of the most common areas that have chipping and peeling paint due to the amount of usage and exposure to the elements. The typical verbiage in paint correction is “scrape,sand and paint any chipping and peeling paint”: all paint chips must be removed from corrected areas.

Let it be noted that on vacant homes some lenders may require evidence that the chipping paint was corrected per EPA guidelines.

An area on the outside of the home an appraiser would check is the roof. A check for missing and/or worn shingles would be visually noted. If the roof has a life expectancy of two years or less, the FHA appraiser will recommend that it be repaired or replaced. The FHA allows only three layers of roofing material. After there are more, the roof must be replaced when further repair is necessary.

Walk around the exterior of your home to look for conditions that might be deemed unsafe. Walkways should be in good repair and free of tripping hazards.

There are also FHA requirements for well and septic systems. Some homes have their own water supply, usually in the form of a well. But the FHA guidelines for wells is quite specific. For an FHA appraiser to pass your well, it must be at least 50 feet from your septic tank and at least 100 feet from the septic tank’s drain field. In addition, the well cannot be within 10 feet of your property line.

The bulk of FHA repairs are typically on the interior. Some suggested areas (in addition to the chipping/peeling paint if built prior to 1978) to pay particular attention for correction are water stains (indicating leak in need of repair), holes and large cracks. Look for evidence of rodents and termites. Turn on your heat and A/C systems to make sure they work, and that they don’t emit strong odors or smoke. Try all the light switches and power outlets to make sure they’re functioning. Remedy frayed or exposed wiring. Check your plumbing fixtures to make sure they all work and are free of leaks. Verify that your home has adequate water pressure–when more than one plumbing fixture is turned on, water should flow normally from each. Repair miscellaneous items the FHA considers health and safety deficiencies. These include missing handrails along stairways, broken windows and missing or unsafe stairways. Have a working smoke detector on every level. Make sure all windows open, remain open on their own and close. Verify that your garage door reverses or stops when it meets resistance.

All repairs noted from the appraiser are areas that are “readily observable”. The appraiser does not move furniture and notes only areas that can be seen upon inspection.

See the attached worksheet as an additional tool to help eliminate FHA repairs and further understand additional elements that need to be addressed in FHA appraisals.

Valuations Conditions 07 2003

 

FHA Appraisals

Appraisal Terminology

Appraisal Terminology Abatement – Abatement is an official reduction or invalidation of an assessed valuation after the initial assessment for ad valorem taxation has been completed; the termination of a nuisance; a reduction in rent levels that a landlord charges … Read More..