Are people getting mortgages in Yardley, Newtown, Washington Crossing, Bucks County?
I saw an interesting article in the New York Times, late last week, regarding the challenges that some people are facing, obtaining mortgage financing. This article focused on the plight of a young dentist, who had a strong credit score , six figure income, and a substantial down payment, yet could not qualify for a mortgage.
Obtaining a mortgage can be challenging
As one mortgage bank owner commented, “the credit pendulum is stuck at stupid”.
Although my recent experience has been that qualified applicants in our area, can obtain financing, there is no question that the process is more difficult and complicated than it has been in the past. Lenders require much more documentation, and will require explanations and follow up for any questionable items regarding income, debts, etc.
The other issue that I have faced recently in a couple of transactions, is very conservative appraisals. For those not familiar with the appraisal process, if you are applying for mortgage financing, your lender will order an appraisal. This is a formal evaluation of the value of the property you are either buying or refinancing. The appraisal will search for comparable properties, that have recently sold, and will compare those homes to the subject that is being appraised.
The lender will lend to the borrower, a percentage of the sale price, or appraised value, whichever is lower. What that means is, if you are putting down 20% to purchase a home, so that you are looking for a loan value of 80%, you will be able to borrow 80% of the sale price or appraised value, whichever is lower. So what happens if the house appraises for less than the sale price?
That’s where it gets complicated. One of 3 things will generally happen. First, assuming that the buyer has made the purchase of the property contingent on a mortgage, the buyer has the right to cancel the contract based on not being able to obtain the required loan amount. Second option would be for the seller to lower the sale price to match the appraised value. If that happens, the buyer is now able to obtain an 80% loan, and could proceed towards closing. Finally, the buyer and seller can agree to a combination of the above. That means the seller can partially lower the price, and the buyer can agree to put in more cash, to make it work. The 4th option would be for the sale price to remain unchanged, and the buyer to put in enough cash to make it work. If you have any questions, about how this works, please feel free to contact me.
I have had 2 transactions within the past few months, that did not appraise. In both cases, the seller reduced the price a bit, and the buyer increased the amount of cash they were willing to put into the transaction, so that we were able to get to closing. It is never good news to the seller, to hear that their house didn’t appraise. It takes persistance, and creativity, to get beyond the initial emotional resposnes, to get to the closing table.
This represents another challenge, in getting mortgage financing, and ensuring that properties go to closing.
Feel free to search for homes, at your convenience, using the search tools on this site.
Continue Reading > Add a Comment |