by Supreme Lending | Nov 1, 2024
There are several important steps involved in the homebuying process, and an independent confirmation of the property’s value is a key step for mortgage approval. This evaluation is typically known as an appraisal. What is an appraisal, why is it done, and what else do you need to know about the appraisal process as a prospective homebuyer? Here are the basics.
What’s an Appraisal?
For those who have never been through the mortgage process before, an appraisal refers to an unbiased estimate of a home’s value. A professional appraiser evaluates the property to confirm its worth, which is then used to determine how much money can be loaned to the borrower through a mortgage.
In nearly all home purchases today, lenders require an appraisal before approving a loan. This is because they want to be confident that they’re not loaning more money than the property is worth, as this would put them at risk of loss if the borrower defaults on the loan.
Generally, appraisals are completed and filed within the jurisdiction in which the property is located. This is important to keep in mind if you’re considering a purchase in another city, county, or state, as different jurisdictions have different requirements and processes.
Why Are Appraisals Important?
As mentioned, appraisals play a vital role in the homebuying process as they provide an unbiased estimate of a property’s value. This number becomes incredibly important when negotiating a purchase price, as it can help confirm or refute the asking price set by the seller.
If you’re planning to obtain a mortgage to finance your home purchase, the appraisal value will also be used to determine how much funds you’re eligible to borrow. In some cases, the appraised value may be lower than the agreed-upon purchase price, meaning that the buyer would need to come up with the difference in cost.
Of course, it’s important to remember that appraisals may not always be 100% accurate. There is some subjectivity involved in the process, and different appraisers can sometimes come up with different values for the same property. That’s why it’s important for buyers to be aware of recent comparable sales in the area, as this can help them gauge whether or not an appraisal is fair.
What Do Appraisers Look for?
When an appraiser is assessing a property, they’ll be looking at several different things. Here’s a general list:
- Interior and exterior inspection: The appraiser will visit the property and conduct a thorough inspection, taking note of both the condition of the property and any features or amenities that may impact its value. This will cover both the interior and exterior of the property.
- Review of recent sales: The appraiser will also review recent sales of comparable properties in the area to get an idea of the current market value. These will be included in the appraisal report for review, along with a street map that shows the locations of those properties.
- Assessment of the property’s condition: The appraiser will also provide their opinion on the condition of the property, which can impact its value. Therefore, it’s important for sellers to make necessary repairs or improvements before putting their home on the market.
- Square footage calculation explained: Assessing square footage is another essential part of the appraisal process. The appraiser will determine the total square footage of the property as well as the livable space. This can sometimes be tricky, as there are different ways to measure square footage and some methods may result in a larger number than others. For this reason, appraisers are generally required to also include the method they used in determining the home’s square footage on the report.
- Photos: One of the most important parts of the appraisal report is the photos that the appraiser takes during their inspection. These provide a visual record of the property’s condition and can be helpful when reviewing the report.
The appraiser’s findings are presented in reports that typically are several pages and include other important information, such as the appraiser’s qualifications, contact information, and any licenses or certifications they may have.
Who Pays for Appraisal Costs?
Generally speaking, appraisals can run between $300-$700 for single-family homes, though the exact cost will depend on the appraiser and the property being assessed. In most cases, the buyer is responsible for covering the cost of the appraisal, though there are some instances where the seller may agree to pay. Homebuyers may have the option to roll the appraisal cost into their closing costs or possibly the mortgage itself.
For more information on the appraisal process, or to learn more about any of our mortgage products and services, contact your local Supreme Lending team today.
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by Supreme Lending | Mar 15, 2024
When considering buying a home, it’s highly recommended that the first step in your homeownership journey is to work with a lender to get pre-qualified or pre-approved for a mortgage. While the two terms sound similar and both help give buyers an understanding of how much they may qualify for a loan, there are distinctions between getting a mortgage pre-qualification and pre-approval. Let’s dive into the differences between these crucial first steps and benefits of each in your homebuying experience.
Mortgage Pre-Qualification: A Preliminary Evaluation
Pre-qualification is an early step in the homebuying and mortgage process. It offers buyers and lenders alike a high-level snapshot of a borrower’s finances and potential buying power. When getting pre-qualified, lenders will typically collect basic financial information provided by the buyer, including income, debts, assets, and any amount of savings or cash they may have available for a down payment. It’s a valuable starting point, giving you an idea of your budget before you start house hunting.
During the pre-qualification process, borrowers may be able to opt for a soft pull credit inquiry. This means your information would remain confidential, with no impact on your credit score and avoids unwanted credit solicitations and third-party trigger lead calls. Ask your loan officer about your credit reporting options.
While a mortgage pre-qualification is less detailed than a pre-approval, this step can be quicker and involves less documents to help busy homebuyers hit the ground running and start their home search. A pre-qualification letter can also show sellers your interest in buying a home and that you can afford an estimated mortgage.
Mortgage Pre-Approval: A Deeper Dive
A mortgage pre-approval takes a more detailed approach and provides an even clearer, more accurate picture of a borrower’s finances and capacity for a mortgage. This is because the loan estimate is based on validated details.
In this step, prospective homebuyers will need to provide their lender with thorough documentation of their financial history for verification, including records like pay stubs, tax returns, and bank statements. Lenders will also run the borrower’s credit score and verification of employment if applicable.
Once pre-approved, the borrower will receive the estimated loan amount they may qualify for based on the verified information—verified being the key differentiator between a pre-approval and a pre-qualification. A pre-approval also gives you, the buyer, a more competitive edge because it demonstrates to sellers that you’re serious and eager to buy a home.
Other Reasons to Get Pre-Qualified or Pre-Approved
- Determine Affordability. It gives you an idea of how much you can afford based on your credit, income, debt, and potential down payment funds. This will help guide your home search within your budget.
- Understand Monthly Payments. With the estimated loan amount you can qualify for, you can get a breakdown of your monthly principal, interest, taxes, and insurance costs to help set expectations for planning your mortgage.
- Find the Right Loan Program. Evaluating your financial details and knowing how much you can qualify for can also help you determine the loan type best fit for your needs and if you could benefit from programs such as first-time homebuyer or down payment assistance.
- Strengthen Your Offer. As mentioned, having a pre-qualification or pre-approval can show sellers you’re a credible buyer and strengthen your offer on a home, which is especially helpful in a competitive market.
- Save Time. Being prepared in advance with a pre-qualification or pre-approval helps identify and avoid any potential roadblocks that could arise during the mortgage process, setting you up for a smooth closing.
In conclusion, getting a mortgage pre-qualification or pre-approval offers invaluable knowledge and opportunities in your homebuying journey. Ready to take the first step? Our Supreme Lending loan officers are ready to serve you! Contact your local branch today.
by Supreme Lending | Mar 13, 2024
The decision to refinance* your mortgage is a strategic move that can have a profound impact on your financial well-being. There are several types of situations when refinancing might provide specific benefits and unlock potential savings. It’s important that homeowners have a clear idea of the possible outcomes when considering a refinance. Let’s dive into a few of the most common reasons people may refinance, some of which may apply to your situation.
Getting a More Favorable Mortgage Rate
A key reason that homeowners refinance is to get a more favorable mortgage interest rate. This can be done by either securing a lower interest rate than your current mortgage or by switching from an adjustable-rate mortgage (ARM) to a fixed-rate loan. In both cases, this may lead to significant savings over the life of the loan and may even reduce the monthly mortgage payments.
When mortgage interest rates drop lower than your current loan, it’s important to note that there are several additional considerations to be aware of, including fees and upfront costs associated with refinancing as well as the amount of time left on your current loan. Working with a trusted lender that provides personalized, transparent refinancing details and costs will help you make an informed decision for your mortgage needs.
Changing the Terms of Your Loan
Another common reason people refinance is to change the terms of their loan. This may involve extending the length of the loan to lower monthly payments or shortening the loan term to pay off the mortgage quicker. Refinancing to a shorter-term loan may increase your monthly mortgage payment, so it’s important to consider your budget before making this decision.
Switching Loan Type
Some homeowners may refinance to opt for another loan type, for example moving from an ARM to a fixed-rate mortgage. Interest rates—and subsequently monthly mortgage payments—for an ARM can increase or decrease based on market conditions, so borrowers may be more comfortable switching to a fixed-rate mortgage that has a steady interest rate and monthly payment that won’t change.
Another scenario could be borrowers wanting to change from a government loan, such as FHA or VA, to a Conventional mortgage. This could be an effective way to save on some loan costs by removing required fees typically associated with government loans.
Removing a Co-Signer
If you required a co-signer to qualify for a mortgage, you may be able to remove them from the loan by refinancing after improving your eligibility to qualify for a loan by yourself. Not only does this free up the co-signer from their financial obligation, but it may also help you qualify for a lower interest rate on your loan, especially if your credit score improves when the co-signer is removed. This could lead to more favorable loan terms. Homeowners may also want to remove a co-signer in the event of a divorce resulting in one spouse assuming sole ownership of the home and full responsibility for the mortgage.
Removing Private Mortgage Insurance or Mortgage Insurance Premium
For those who put down less than 20% down payment for a home, a common requirement is carrying private mortgage insurance or PMI. This protects the lender in case the borrower defaults on the loan, but it also means an additional monthly cost that can add up over time.
With Conventional mortgages, you don’t have to always refinance to remove PMI. It can be removed after you’ve reached a certain equity threshold in the home—usually 20%. However, some mortgage programs, like FHA loans, require a Mortgage Insurance Premium (MIP) for the life of the loan. An FHA borrower would need to refinance to a Conventional mortgage to remove the MIP cost.
Cashing Out Equity
Finally, another popular way homeowners utilize refinancing is to cash out the equity that’s built up in the home. If you refinance an amount greater than what you owe on your home, you can receive the difference in a cash payment to be used as you wish. For example, you may use this cash to fund home improvements, pay off high-interest debts, or for other large expenses. How you use the cash is up to you.
It’s important to remember that cashing out equity will increase the amount you owe on your home and may also lead to a higher interest rate—factors that should not be overlooked.
As you can see, there are a variety of reasons why homeowners may choose to refinance their mortgage. It’s important to carefully consider your individual circumstances and financial goals before making a decision, as refinancing may not be right for everyone.
For more information on reasons to refinance, or to learn more about any of our mortgage programs and services, reach out to your local Supreme Lending team or contact us today.
*By refinancing an existing loan, total finance charges may be higher over the life of the loan.
