Home OwnershipSupplements

Appraisals: Buyer Tips for a Competitive Market

In today’s crazy real estate world and bidding wars, things tend to get out of hand as always in a seller’s market. In fact, Redfin reports nearly two-thirds of offers nationally have ended up in bidding wars, with 42% of homes selling above asking price. Offering below list price is just not an option right now, meaning homebuyers face one more challenge…a lower than expected appraisal.

In effect, the appraisal is the collateral for the loan. Lenders follow the licensed professional’s guidance no matter what anyone else says. Appraisals ensure that your new home is worth what you agreed to pay, and they help the lender know how much money to lend. Unless you pay in cash, an appraisal will come up in the transaction. I offer four insider insights for buyers who may just be entering the housing fray.

Make it quick… In a seller’s market, a quick turn-time on all aspects of the loan process will make a big difference. Especially if a seller has agreed to a contingency, a short timeframe will definitely be appreciated and may win the contract. A bank with a local panel such as EagleBank’s is made up of appraisers who are nearby and familiar with the market. They can accommodate rush requests even during busy times.

Make it go away… For conventional loans, an automated underwriting system is used. A Fannie Mae or Freddie Mac automated report will often waive the appraisal requirement up to 80% loan-to-value (LTV). (Super pro tip alert! Sometimes an appraisal waiver will happen on higher LTVS up to 90%.) This is especially true if the home has changed hands in the past five years, and a previous appraisal is on file.

If all parties agree to the value established by the waiver, no further appraisal report is needed.

Make it rain… There’s a greater chance in a hyped-up market that a value will come in low. If that happens, be prepared to make up the entire difference. A realtor’s analysis can often predict a price close to the final value, but an appraiser’s report compares recent home sales nearby and takes into consideration the condition and replacement cost. Knowing the financial impact of an escalation beforehand can make the appraisal process less stressful.

In other words, don’t let escalation clause win the contract but break the bank. Go for a home that fits the family budget. Renegotiating is not a sure bet these days.

Make it work for you… Many people think private mortgage insurance (“PMI”) is to be avoided at all costs. However, PMI can be a terrific tool for first-time buyers and those who don’t have a 20% down payment. On a conventional loan, a buyer can ask of the lender that the MI be removed when 20% equity is achieved.

PMI can also overcome a low appraisal without drastically increasing the expected monthly payment or requiring buyers to significantly add more to the down payment. A one-time buyout of the mortgage insurance does not increase the monthly payment and may be surprisingly cheaper than the alternatives.

Finally, make it happen. A low appraisal is an exception and certainly not a given. If you’re interested in buying a home, consider doing it now while interest rates are low. This can translate into tens of thousands of dollars in savings over the life of a loan. Now, that is a thing of great value.

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For mortgage payment calculators, go to EagleBankCorp.com/mortgages. Detailed info on credit can be found at https://myhome.freddiemac.com/resources/creditsmart.html.

Maceo Clark (NMLS# 807001) has extensive experience in the mortgage industry as a community lender and loan originator. He is also a long-time volunteer youth soccer coach, so EagleBank’s partnership with DC United truly hits close to home.

Maceo’s ongoing goal as a lender is to provide the best mortgage options and achieve the highest levels of satisfaction for his customers. He offers expert knowledge of Affordable Housing and First-Time Home Buyer resources, as well as refinance services. Maceo can be reached at MClark@EagleBankCorp.com or 301-850-2655.

EagleBank Residential Lending is not a credit counseling or financial advisement firm. This information is for educational purposes only and is not to be taken as guidelines or guarantees to improve your credit or financial situation or eligibility to secure a home loan. EagleBank is an Equal Housing Lender. NMLS# 440513.

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