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Repair Escrows for VA Mortgage Loan, FHA Mortgage Loan

November 5, 2013 Leave a comment

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roofpaintAppraiser Says

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Repairs Needed?

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Mortgage Appraisers for both VA Home Loan Mortgages and FHA Home Loan Mortgages will be sticklers on safety, habitability, and structural soundness.  In the past they worried about things like porch railings or uneven cement sidewalks that caused trip hazards.  These don’t get flagged much any more.

However, failing roofs or peeling paint are two of the most common issues flagged by appraisers in a VA Mortgage or FHA Mortgage Loan Appraisal.  We will deal with exposed electrical wires and foundation issues in a future post!

The roof issue is fairly self explanatory.

  • A bad roof can allow structural damage to the house.  Neither FHA nor VA wants the buyer or veteran to have to come up with the money for a new roof in the first two years after closing.  If the appraiser determines that the roof does not have two good years left, then it must be replaced before closing, weather permitting.

OK, so what’s he big deal about peeling paint?

  • Any peeling paint on a home built before 1978 is automatically assumed to represent a lead based paint hazard.  No health hazards are allowed in homes financed by VA loans or FHA loans.  So, if appraiser flags peeling paint, it must be repaired before closing – weather permitting.

If weather not permitting then repair escrows need to be established at closing, so funds are held until the new roof, or the scraping and painting can be verified in the spring.

Who pays?

  • Repair escrows can be funded by buyer or seller, but somebody has to contribute the money at closing.  Seller may be willing to contribute the money to fund repair escrows if appraisal comes in high enough to add the same amount to purchase price?

Who does the work?

  • The best policy is for buyer to get professional estimates to repair these things.  When weather permits, buyer can have work done professionally, or – if qualified – do it himself.

If work is done professionally:

  • The contractor may be willing to agree to wait for payment from repair escrows. If so, then once compliance inspection/appraisal is done, Raymond can submit contractor bills so that contractor is reimbursed.  If contractor wants payment from Raymond when job complete, then Raymond can pay out of pocket, submit paid receipts, then keep the reimbursement.

If buyer does the work:

  • Materials are paid out of pocket, then order compliance inspection, then submit materials receipts and keep the reimbursement.

Either way, after compliance inspection, any unused funds will be credited back to reduce the mortgage balance.

Copyright Lonn Dugan.  Click for more information about VA Mortgage Home Loans, FHA Mortgage Home Loans 

Mortgage Refinancing When Under Water?

April 23, 2013 Leave a comment

Refinancing Your Mortgage When Under Water

 

The biggest issue in refinancing is the appraisal value of the house compared to the loan value. When a house is worth less in today’s market, than the loan balance owed, then it is said to be “under water”.  It can be hard to refinance unless you qualify for a HARP Loan or one of the streamline refinancing programs.  As a Mortgage Lender, I have two basic options for people in this situation.  


Mortgage Refinance Option One:

Programs for refinancing when under water are for loans that are owned by the Government.  Most loans are owned by the government but some big banks don’t sell them.  The loans that can be refinanced when under water can be owned by Fannie Mae, Freddie Mac, VA, USDA, or FHA.  Do you know if you have one of these kind of loans?  If you don’t know, you can call your mortgage company and ask.  Then let me know.      


Mortgage Refinance Option Two

If not one of the loan types mentioned in option one, we can still refinance if a borrower can pay the difference between appraisal value and loan amount.  Some people borrow against their investment portfolio or 401K to do this.  Is this a possibility?  

Let me know the answers to these questions and I will try to help further.


How Can I Know Appraisal Value 

Your county auditor bases real estate taxes on a taxable value for your home.  This tax value is supposed to be based on a theoritical market value, but in some cases, like many areas in Michigan, you multiply the tax value by 2 to arrive at market value.  The auditor does not know for sure what your house is worth because they have not been in your house.  They go by average sales of similar homes.  If you have made major improvements or recent home sales in your neighborhood have been for more money then maybe your appraisal will be higher than tax value.  Usually it is not worth spending the money on an appraisal unless the auditor value is at least in the ballpark of the amount owed, or more.  Real estate web sites like Zillow.com and Trulia.com can also help determine ballpark value but not appraisal value.  The only way to get an actual appraisal value is to get an appraisal.  These cost from $400 to $500 these days.

To refinance your house, especially if auditor value is not 20% more than loan amount owed, you will most likely need an appraisal.  Again, make sure the auditor value is at least in the ballpark before letting a mortgage bank order an appraisal.

For additional information see also http://www.mortgagehomeloanohio.com, http://www.mortgagehomeloanmichigan.com or http://www.mortgagehomeloanflorida.com

Lonn Dugan, Loan Officer, Midwest Mortgage Investments, http://www.midmtg.com and http://www.ToledoHomeLoans.com