What Buyers and Sellers Need To Know About the Appraisal Gap; An Article from Keeping Current Matters

It’s economy 101 – when supply is low and demand is high, prices naturally rise. That’s what’s happening in today’s housing market. Home prices are appreciating at near-historic rates, and that’s creating some challenges when it comes to home appraisals.

In recent months, it’s become increasingly common for an appraisal to come in below the contract price on the house. Shawn Telford, Chief Appraiser for CoreLogic, explains it like this:

Recently, we observed buyers paying prices above listing price and higher than the market data available to appraisers can support. This difference is known as ‘the appraisal gap . . . .’”

Why does an appraisal gap happen?

Basically, with the heightened buyer demand, purchasers are often willing to pay over asking to secure the home of their dreams. If you’ve ever toured a house you’ve fallen in love with, you understand. Once you start to picture yourself and your furniture in the rooms, you want to do everything you can to land the property, including putting in a high offer to try to beat out other would-be buyers.

When the appraiser comes in, they look at things a bit more objectively. Their job is to assess the inherent value of the home, so they’re going to study the facts. Dustin Harris, Appraiser Coach, drives this point home:

It’s important for everyone to understand that the appraiser’s job in the end is to remain that unbiased third party, to truly tell the client what that home is worth in the current market, regardless of what decisions have been made on the price side of things.”

In simple terms, while homebuyers may be willing to pay more, appraisers are there to assess the market value of the home. Their goal is to make sure the lender isn’t loaning more money than the home is worth. It’s objective, rather than emotional.

In a highly competitive market like today’s, having a discrepancy between the two numbers isn’t unusual. Here’s a look at the increasing rate of appraisal gaps, according to data from  CoreLogic (see graph below):


What does this mean for you?

Ultimately, knowledge is power. The best thing you can do is understand an appraisal gap may impact your transaction if you’re buying or selling. If you do encounter an appraisal below your contract price, know that in today’s sellers’ market, the most common approach is for the seller to ask the buyer to make up the difference in price. Buyers, be prepared to bring extra money to the table if you really want the home.

Above all else, lean on your real estate agent. Whether you’re a buyer or seller, your trusted advisor is your ally if you come up against an appraisal gap. We’ll help you understand your options and handle any additional negotiations that need to happen.

Bottom Line

In today’s real estate market, it’s important to stay informed on the latest trends. Work with a real estate professional to help you navigate an appraisal gap to get the best possible outcome.

Appraisal Gaps are increasing.  Now up to 20% of all transactions:  https://www.keepingcurrentmatters.com/2021/08/31/what-buyers-and-sellers-need-to-know-about-the-appraisal-gap/



Want To Know The Payment & Closing Costs Of That House That Just Went Up For Sale?

Want to know the payment & Closing Costs of that house that just went up for Sale?
(Now Offering Bridge Loan Financing!!)

Hello Friend!!
As you probably know, I like to stay in touch with my past clients, many of whom I’ve developed friendships with over the years. Regardless of how often we have stayed in touch since we’ve worked together on your last mortgage, I want you to know that I am always here to be of assistance to you, your friends, your family, and your co-workers.  I greatly appreciate your business as well as your referrals.  As an independent Loan Officer, your past business, repeat business, and your referrals are what keep me in business.  I cannot thank you enough.

In case you didn’t already know,

or as a reminder and an open invitation to you and those in your circle, I am always available to work up numbers on properties that are for sale without any commitment from you, or another interested party whom you’ve referred. To work up a “Dodd/Frank approved Loan Estimate” detailing monthly payment and closing costs, I simply need an email with the following information:

  1. Address of the property that is for sale (Note: We only finance owner occupied properties and true “second” homes).
  2. Price that I am to work up numbers on for the home that is for sale (Note: Homes for sale in the spring market of 2021 are often times selling for much more then they are listed for)
  3. Name and current address and phone number of the person seeking the information (Note:  If it is you, it is likely I already have your current information.  But if it is a referral, I will need them to also let me know they were referred by you as I continue to work “By Referral Only.”)
  4. I will need to know the total amount of funds available to work with for down payment, closing costs and pre-payment of an escrow account for property taxes and homeowners insurance.
  5. Permission to run a “Soft Pull” credit report which will give me an accurate (not estimated) TransUnion score.  This “Soft Pull” credit report does not show up as a “hit” or an “inquiry” on the person’s official credit report.
  6. Example of Loan Estimate

We are now also offering Bridge Loans!  3 Ways to purchase your next home prior to first selling your current home – Bob Hein (bobheinmortgage.com)

As of today, the inventory of homes listed for sale remains low and this continues to be a challenge for buyers. It may never be a better time to sell than then what we are seeing right here and now, in 2021. However, even with the recent uptick in interest rates, mortgage rates are still very low. Home affordability remains very strong, especially in West Michigan  and in comparison to other parts of the country.  If there is anything I can do to provide information, education, or value to you or anyone you know who is thinking about buying a home, I am available!!!

We greatly appreciate your business and hope to hear from you soon. Contact me with any mortgage questions.

Phone: 616-292-6703
Email: bob@prioritymortgagecorp.com

– Bob Hein, Mortgage Lender

   NMLS 162989

3 Ways to purchase your next home prior to first selling your current home

3 Ways to purchase your next home prior to first selling your current home

Dear Friends,

There are reasons why some homeowners would like to “move up,” and purchase their next home prior to first selling their current home. Here are 3 common ways people are doing this in today’s market:

  1. Accessing Funds from a HELOC for Down Payment:  A HELOC is an acronym for “Home Equity Line of Credit.”  It is a 2nd lien that would be placed on one’s home and it is subordinate to the first mortgage.  A HELOC is a flexible loan that will allow you to borrow up to your credit limit and then pay it down as you are able so long as you make the minimum monthly payment.  Minimum payment requirements are usually very manageable, often requiring interest only.  Another nice feature with the HELOC is that there is usually little to no fees for application and closing. It is important to note that one should not apply for a HELOC with the intent to immediately use it for the down payment on a new home, as a traditional “bridge loan” would be used.  Almost all banks and credit unions frown on this type of immediate use for a newly opened HELOC.  Like any loan that involves a lien on real estate, there can be a fair amount of paperwork involved for the lender.  If a HELOC were to pay off early (as within a month or two of being approved for it), the bank or credit union will have invested time and effort into processing a loan that had no upfront fees, and possibly little to no interest paid on it.  If one is to use funds from a HELOC for down payment on a new home, the HELOC should have been in place for a period of time.
  2. Bridge Loan:  This is a loan against one’s current home with the express purpose of using the loan proceeds to be used for the down payment on a new home.  Because the bank or credit union is aware that this loan is intended to be used for a very short term time, they can quote and collect the fees as they deem necessary.  The bank or credit union who is lending the money for the bridge loan would require that they also do the end loan financing, which is only fair.
  3. Down payment from savings and/or Gift funds, combined with a one time principal payment re-cast to 78% LTV:  This method has gained a lot of popularity over the past few years.  The advantage is that it is a quick and efficient way to close on a new home, and it is more cost effective then other methods.  If a conventional buyer is able to put 5% down on a new home from their savings and/or gift funds on the initial purchase, they can then put additional funds down later using the proceeds from the sale of their current home.  This large, subsequent additional principal payment will put the homeowner in position to adjust their payment much lower with a “1 Time payment Recast.”  Thus, their payment will be recalculated to amortize based on the new lower loan amount.  Furthermore, if the homeowner puts enough down to obtain a 78% Loan-to-Value from their original purchase price, their PMI will be eliminated as well!!  The benefits of this method is that there are no fees or interest to pay as with the temporary financing associated with HELOC or bridge loan financing.  This method should also be easier to qualify for as there would only be the new house payment and current house payment included in the borrower’s debt ratio, opposed both house payments, plus the HELOC or Bridge Loan payment to be included in the borrower’s debt ratio.
For others, the preferred or ideal way to purchase their next home is the stayed true method of selling their current home first.  And for many, it is really their only option.  However, there are some ways that can make working through the logistics of this process more manageable.  Ask your Realtor whether an extended closing date and an extended possession date would work for your home sale.  It is possible that a seller can get up to 60 days on both, making a 120 cushion to find and close on a new home.  With the low inventory, red hot seller’s market that we have experienced in the past 5-6 years, this option might be a negotiable term for some.
In monitoring the market, we continue to find that our rates are at least matching the credit unions, but often beating their rates.  But going further, my team and I take pride in the responsiveness, speed and efficiency that we provide, which cannot be matched by the banks or credit unions.  For pre-qualifying, pre-approval, or getting a Loan Estimate, please reach out to me.  I love hearing from my past customers and those professionals in the Real Estate community.
Thank you for your referrals!

2021: You did not miss the boat on Rock Bottom Mortgage Rates

Dear friends,

Heading into the very early part of 2021, if you find yourself looking to buy a new home or refinance your mortgage, rest assured… you did not miss out on the rock bottom mortgage rates that existed for most of 2020, at least for the time being. 

When it comes to predictions and forecasts regarding the future of the economy and interest rates, there are plenty of economists and average Joe’s out there who are willing to share an opinion.  Although, the economists are paid to make forecasts, they’re not always correct.  Some have better track records than others, and some average Joe’s might be just as good at predicting the future of the economy as the high priced economist?  Regardless, no one has a crystal ball.  Over time, even the best are not consistently correct.  In fact, in July of 2020, the MBA’s (Mortgage Banker Association’s) research team predicted that 30-year loan rates would average in the 3.2% to 3.3% range in the last 2 quarters of 2020 (*).  Thus, even the Mortgage Bankers’ Association was off in their short term forecast by at least 0.5% as we saw 30-year rates remain in the 2.625% to 2.875% range for the 720+ credit score borrowers. 

As we head into 2021, we see mortgage rates holding steady in the 2%’s.

Having graduated with an economics degree from Grand Valley State University, and as mortgage banker with over 30 years of experience, I have always paid close attention to the movements in mortgage rates (and the potential future movement of mortgage rates). It has been part of my job to do so as I am asked about mortgage rates almost daily, and to give my “average Joe” opinion. My responses to these questions of forecasting rates have always been simple. That is: “Whatever causes inflation will normally cause interest rates to hedge up, and vice versa.”  Hey, I said it was simple, didn’t I? But, I do go into a little further explanation from there; and that is essentially:  what is good news for the economy is bad news for interest rates, and what is bad news for the economy is good news for interest rates.  With that being said, I usually give some examples.

My 3 Month Forecast

With the all of the very unfortunate, economic destruction caused by Covid-19, we should see mortgage rates stay low until more businesses open again, and the economy gets back to more of a normal sense. This might not be until most people are of the opinion that the vaccines to Covid are working well, and that the vaccines are being widely administered? Until that time, the Federal Reserve is likely to continue buying mortgage backed securities, keeping mortgage rates low to inject liquidity into the economy, and to keep the housing market robust. There are always international developments that can arise which cause interest rates to rise or fall. There can also be governmental fiscal policy decisions that are designed to spur economic growth but are viewed to be inflationary, which could cause interest rates to hedge up. But, basically, there is no true crystal ball. What we do know is that mortgage rates are truly at historic lows going into 2021. We don’t know what the rest of the year holds, but at least for the near term, we will see extremely low rates throughout the first quarter of 2021. So, how’s that going out on a limb for a 3 month forecast!

With rates still in the 2%’s, right now is still a great time to buy or refinance. I have been very fortunate and blessed in the mortgage industry throughout my career, but especially in 2020, being able to close purchase loans and refinances for my clients at such rock bottom rates. Starting 2021, I am grateful to be rested and ready to build back up my pipeline, offering the same service and low rates that people have come to expect from me and my team. I appreciate everyone reading this for your past business, your referrals, and so much more than you know. I am hopeful for many things, but here are two of them as I conclude: (1) for your continued referrals that keep me in business, and mostly (2) that the Covid-19 virus is brought under control to the point of polio, small pox, and other viruses that have been brought under control in our history. This mortgage banker for one would be very happy with a much higher interest rate, but a Covid free environment, opposed to what we experienced in 2020. I am available for refinances and pre-approvals now!  Friend’s, let’s say good riddance to 2020, and welcome in 2021.

USDA Announces Polaris Home Funding as 3rd Largest RD Lender in Michigan

USDA Announces Polaris Home Funding as 3rd Largest RD Lender in Michigan

U.S. Department of Agriculture Rural Development kicked off this month by recognizing June as the ongoing role in supporting rural home ownership.

“Rural communities are rising to the challenge put forth by the coronavirus pandemic,” Brand said. “Under the leadership of President Trump and Agriculture Secretary Perdue, USDA is committed to being a strong partner in building prosperity in rural communities and for the people who call them home – especially those impacted by the COVID-19 pandemic.” – USDA Rural Development State Director for Michigan Jason Allen.

Allen goes on to say,

“Working with our partner lenders, USDA is helping rural Michigan families achieve the dream of home ownership,” said USDA Rural Development State Director for Michigan Jason Allen.  “Hundreds of lenders have participated in the program and it would be difficult to recognize them all, but I congratulate our leading lenders, Amerifirst Financial, Flagstar Bank, Polaris Home Funding and Mortgage 1, on their years of commitment to this program.”

In Fiscal Year 2019, USDA in Michigan invested more than $571 million to help 4,445 families and individuals buy a home. USDA also provided $2.4 million for home repairs to 435 very low-income rural residents.

Since the guaranteed loan program began in 1991, Michigan has obligated more than 100,000 loans totaling more than $10 billion, becoming the first state in the country to reach either of these milestones. USDA Rural Development provides loans and grants to help expand economic opportunities and create jobs in rural areas. This assistance supports infrastructure improvements; business development; housing; community facilities such as schools, public safety and health care; and high-speed internet access in rural areas.