Real Estate Analysis and Commentary in Peoria, Arizona

By Shelley Waterbury
11/07/2022

https://www.shelleyshomeloans.com/
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Every time there’s a news segment about the housing market, we hear about the affordability challenges buyers are facing today. Those headlines are focused on how much mortgage rates have climbed this year. And while it’s true rates have risen dramatically, it’s important to remember they aren’t the only factor in the affordability equation.

Here are three measures used to establish home affordability: home prices, mortgage rates, and wages. Let’s look closely at each one.

1. Mortgage Rates

This is the factor most people are focused on when they talk about homebuying conditions today. So far, current rates are almost four full percentage points higher than they were at the beginning of the year. As Len Kiefer, Deputy Chief Economist at Freddie Mac, explains:

“U.S. 30-year fixed mortgage rates have increased 3.83 percentage points since the end of last year. That’s the biggest year-to-date increase in rates in over 50 years.”
That increase in mortgage rates is impacting how much it costs to finance a home purchase, creating a challenge for many buyers that’s pricing some out of the market. While the current global uncertainty makes it difficult to project where mortgage rates will go in the future, experts do say that rates will likely remain high as long as inflation does.

2. Home Prices

The second factor at play is home prices. Home prices have made headlines over the past few years because they skyrocketed during the pandemic. Now, the most recent Home Price Index from S&P Case-Shiller shows home values continued to decelerate for a fifth consecutive month (shown in green in the graph below):

Key Factors Affecting Home Affordability Today | Keeping Current Matters
This deceleration is happening because higher mortgage rates are moderating demand, and as a result, easing the buyer competition and bidding wars that previously drove prices up.

What’s worth noting though, is how much higher home prices still are than they were before the pandemic (shown in blue in the graph above). Even now, we have a long way to go to get to more normal levels of home price appreciation, which is historically closer to 4%. When both mortgage rates and home prices are high, affordability and your purchasing power become a greater challenge.

But while prices are still elevated in many markets, some areas are seeing slight declines. It all depends on your local market. For insight into what’s happening in your area, reach out to a trusted real estate professional.

3. Wages

The one big, positive component in the affordability equation is the increase in American wages. The graph below uses data from the Bureau of Labor Statistics (BLS) to show how wages have grown over time. This year is no exception.
Key Factors Affecting Home Affordability Today | Keeping Current Matters
As the Bureau of Labor Statistics (BLS) reports:

“Median weekly earnings of the nation’s 120.2 million full-time wage and salary workers were $1,070 in the third quarter of 2022 (not seasonally adjusted), the U.S. Bureau of Labor Statistics reported…This was 6.9 percent higher than a year earlier…”

So, when you think about affordability, remember the full picture includes more than just mortgage rates. Home prices and wages need to be factored in as well. Because wages have been rising, they’re a big reason why serious buyers are still purchasing homes this year.

If you have questions or want to learn more, reach out to a trusted advisor who can explain how all of these variables work together and what’s happening in your area. As Leslie Rouda Smith, President of the National Association of Realtors (NAR), says:

“Buying or selling a home involves a series of requirements and variables, and it’s important to have someone in your corner from start to finish to make the process as smooth as possible… and objectivity to deliver trusted expertise to consumers in every U.S. ZIP code.”

Bottom Line
To learn more, reach out to a trusted real estate professional and a local lender so you’re able to make an informed decision if you’re planning to buy or sell a home right now.

It has been nearly 100 days since our last blog post about the market changes happening in Maricopa County and all over the country for that matter.  

We get a lot of calls, asking us if the housing price drop of 2008 is here now, and that is a difficult question to answer.  It is yes and no, with a little grey in the middle.  Interest rates and rising basic living costs have skyrocketed in the past six months.  Rates have risen from the mid 3% area to 7%.  I will give a basic example of the dollar / affordability differences between the two.

A $350,000 loan amount, amortized over 30 years at a 3.5% interest rate would require a $1,572, per month, (principle & interest) payment.  At a 7% interest rate, the monthly payment would be $2,329, per month (principle & interest).  That is a whooping difference of $757, per month more for the same home.  So, for a typical family with a car payment, a few credit car payments, a college loan payment, and a house payment, the mortgage payment has to typically fit with-in a 45% to 50% loan to debt ratio.  So lets do the math, buyer A has a combined household income of $82,000 or $6,833 (prior to taxes).  45% to 50% of that income, per month, would leave $3,417 to $3,758 left for your revolving debt (car payments, credit card payments, loan payments, mortgage payments, etc.).  

So buyer A, has a car loan payment of $700, per month, a furniture loan of $150, per month, $250 in monthly credit card debt, and a $500, per month, loan on that fishing boat for a total revolving debt of $1,600 (not including the mortgage payment).  Therefore, in the best (50% loan to debt ratio) scenario, they would be able to qualify for a mortgage payment of $2,158.  So you can see at a 3.5% interest rate, buyer A would be able to afford a mortgage amount of around $475,000 (this is why home prices were higher).  Now, at a 7% interest rate, with the same Buyer A, they would be able to afford a mortgage amount of $320,000 (best case scenario).  Net difference in the affordability index of $155,000 less (mortgage amount).  This is huge, and this is why home prices are dropping.  Based on this simple affordability index example, home prices for the same home with a constant down payment, would have to drop approximately 32% at a 7% mortgage rate before Buyer A would be able to purchase the same home at a 3.5% mortgage rate.

Now, this doesn't factor in the higher prices of fuel, groceries, and basically every item consumed by consumers in the United States in the past two years or so.

So to simplify what is happening, it isn't that we had a housing bubble, it is that there was an interest rate bubble.

So will housing prices drop 32%?  We don't think so, but there will and has been a correction in the past six months or so, and this will continue until houses are at price-points that allow the typical homeowner to be able to qualify for a mortgage.  As always there are a lot of other factors in play, like rising income taxes, mass job cuts and/or unemployment, natural disaster, conflicts, etc.

We know personally that a lot of customers ask "is now a good time to buy", and the answer is yes if you need a home and don't need to sell.  It is a complete buyers market right now, selling a home is difficult and there is a lot of other listings to compete with.  If the dream house you are waiting to drop in price, drops in price, more than likely the home you need to sell will drop in price at a similar rate, so it will equal out.  If you don't own a home, now is a good time to bargain shop, as buyers have the leverage in negotiation currently.

Let's see what happens over this last quarter, and we should be able to tell some long term trends and we will update the blog in another 90 days or so.

The housing frenzy appears to be over. Multiple offers above list price, sight unseen all cash purchases, bidding wars, homes contracted prior to the sign installation, and real estate agents with a listing guaranteed a commission have been the "norm" over the past two to three years, but then April 2022 came along with rising inflation / interest rates / fuel prices. Being an appraiser and owning a real estate appraisal firm, we are tip-of-the-spear, per say, and we feel the market by changes in volume of orders. This time (April 2022), we were unsure if it was the new Fannie / Freddie desktops or the market slowing, but we quickly noticed the inventory increasing and even seeing "price drops" on listings. What????  That has not happened for years in Arizona, it was then I realized we have crested the mountain and are now going down the mountain.

This does not necessarily mean "Doom & Gloom" and actually is healthy.  Appraisers not only provide lenders with opinions of market value, but we are also mostly real estate market analysts. We see the interiors of multiple homes each day and review interior / exterior photos of hundreds of homes per day. We drive to properties, look at the neighborhoods and recognize changes. During the past three years, we seen a market that did not care what the property was, only that there WAS a property to buy. This would be like starving and when you finally found food, you really would not care what it was if you could eat it. So, why is it healthy? Well, because at the current rate of appreciation, 90% of American families would not be able to afford a home, not to mention the repair expense of the home they found and had to bid well above market value for. There needed to be a reset, and hopefully the days of appraisal waivers and desktop appraisals are gone. I have firsthand seen so many cases of home owners that chose the waiver path then went to refi and found out the home wasn't even worth what they paid for it, although the market has went up over 1%, per month, during the past year.

Interest Rates are a leading cause because it decreases the affordability curve in the wrong way for typical families.  Rising gas prices hurts us all because everything we eat, use, and consume requires diesel trucks / boats / trains and that transportation cost raises consumer prices. Companies have shareholders and shareholders want to see profits. In addition, the housing run just ran out of steam, there were too many factors pulling down on the run over the past six months, and in April, it became too heavy and now down it goes. Do I believe that we are in a 2008-2011 drop? Not even close. Most mortgage loans in today's market, the owner has a pulse and a job and has verified income. But a correction is coming and if you did not pull out 100% equity, it will just be a hiccup in the long term.  I am not going to estimate what I personally believe the drop will be, I will let the market be the market and will just report it as I see it.

So how can homeowners, realtors, investors, etc. get ahead of it. Well, one thing would be to get a real appraisal from a real appraiser. Have them measure the home using ANSI Z765-2021 standards to get a real (Fannie / Freddie) accepted livable square footage. Ask the appraiser to do forecasting for an acceptable window of time, review all the comparable listings and the marketing times of those listings (along with price drops), get a real market value based on the market as of the effective date (not using sales contracted in February, March, or April when there was no inventory). This can be a great marketing tool and provide some reality to sellers for Realtors or Investors and even Homeowners. Times are changing and being at the forefront of the change may save you tens of thousands.

We provide all types of residential valuations, measuring services, market analysis, and neighborhood observations. Visit our website and read the menu, not only does it explain our services it also has self-help guidance tips.

West Valley Appraisal Services

by Jason Clow
Opinion Piece

Well it has been a few months since the desktop appraisal option has been available in lender's toolboxes.  As a firm, we have not yet received an order for a desktop appraisal; however, we are making sure we are prepared and ready when the time comes.

As we discussed in the previous blog, the biggest hurdle in our opinion was the special drawing / floorplan required to be performed by a third party source.  So, we decided to sign up for CubiCasa^TM as it is really the only option available for appraisal firms that do not work for AMC's.  

WE ARE NOT AN ADVOCATE FOR CUBICASA^TM SOFTWARE, BUT RATHER JUST A TYPICAL CUSTOMER.  WE HAVE NOT BEEN COMPENSATED FOR THIS OPINION BLOG.

I tasked my youngest certified appraiser with the job "Mackenzie".  We had a vacant house (but staged with furniture) that we have physically measured recently, that was going to be our test subject.  The home was a very basic single level home, built in the late 70's, and considered a very easy measure, even for a novice appraiser.  I told Mackenzie to watch the YouTube videos from CubiCasa^TM, install the software on your smart phone and go measure this house like any third party realtor or homeowner would do and do a write-up of your experience.

Mackenzie, watched approximately 45 minutes of training videos on how to use the measuring software, installed the software on his smart phone, and logged into our CubiCasa^TM account.  The actual measure using the software took approximately 12 minutes and was sent to CubiCasa^TM for rendering.  We received the floorplan / sketch back in approximately 24 hours and were impressed overall.

The livable square footage of the home based on physical measurement was 1,758 sf, with a 542 sf garage, a 43 sf covered entry, and a 167 sf screened patio.  Performed to ANSI-Z765-2021 standards.

The livable square footage of the home based on CubiCasa^TM smart phone software was 1,829 sf, with a 510 sf garage, and a 166 sf screened patio.

So the correctly measured square footage performed to ANSI standards was 71 sf smaller (livable) than the software measuring tool.  Not too bad actually, but still was hoping it would be a little closer overall.  Wall thickness was 0.5 which is similar to what CubiCasa^TM calculates also.  The interior walls and floorplan was surprisingly accurate.

In conclusion, the typical homeowner would not be able to use this software based on our experience with the last COVID-19 desktops, where we sent an app link to homeowner's smart phones to gather notes and photos of the interior of the property.  That was in itself challenging for about 50% of homeowners.  Also believe it or not, a large portion of the population of homeowners do not have current smart phones and/or don't use them for "apps".  We believe seasoned realtors would be able to use this software effectively and it would take approximately 20 to 30 mins on average (including interior photos / notes).  WE WERE IMPRESSED WITH THE CUBICASA^TM SOFTWARE, AND IT IS A GREAT FLOORPLAN DRAWING TOOL ESPECIALLY FOR MARKETING PURPOSES OR VISUAL PURPOSES.  

See the two drawings for comparison below:

Physically measured drawing on Alamode Sketching Software



CUBICASA^TM DRAWING

by Jason Clow
Opinion Piece

Step right up everybody!!!  Consumer's can now opt for desktop Fannie Mae & Freddie Mac eligible loans, what does this mean for all of us?

As all appraisers should know, FANNIE & FREDDIE are now allowing consumers to opt a desktop appraisal starting March 6th 2022 for Freddie Mac & March 19 2022 for Fannie Mae loans, if the following criteria is met:
 

• Includes a complete subject property address
• Is a purchase transaction
• The loan is secured by a one-unit principal residence
• The loan-to-value (LTV) ratio is less than or equal to 90%
• The loan casefile receives an Approve/Eligible recommendation

The following transactions are not eligible for the desktop appraisal option:

• Second homes and investment properties
• Limited cash-out and cash-out refinances
• Construction-to-permanent loans
• Two- to four-unit properties
• Community lending mortgages (HomeReady® and HFA Preferred™ mortgages)
• HomeStyle® Renovation and HomeStyle Energy loans
• Community Seconds® with a subsidized sales price, community land trusts, or other properties with resale restrictions (loan casefiles using the Affordable LTV feature)
• Condo and co-op units, and manufactured homes (including MH Advantage® properties)
• DU loan casefiles that receive an Ineligible recommendation

Desktop appraisals were temporarily allowed during the COVID-19 pandemic and in our experience were about as accurate as could be relying on data (square footage primarily) that is about 80% accurate, the other 20% of the time, the assessors square footage is substantially incorrect and we will discuss that a little further down in the blog.

The main difference is now is the lender / client is required to hire a third party  responsible for gathering measurements to calculate square footage and also include interior walls / doorways / stairwells / exterior ingress / egress along with labels for all rooms.  *INCLUDING THE INTERIOR WALLS IS A NEW REQUIREMENT*  

So the big question is, how is the appraiser sitting at his or her desk going to obtain this drawing / sketch /  meeting the new guidelines.  Well, the way I understand it, the lender / client will now be required to hire third parties to come on site and perform the measurements / photos / labeling / etc.  This third party can be Realtors, appraiser trainees, uber-drivers, home-owner, etc.  This sound great, RIGHT?   Yes if the house is a single level rectangle with no decorative pop-outs or false walls or arc's or non 45 / 90 degree angles, etc.  This is approximately 5% of homes.  

Now there are software developers chomping at the bit to get their teeth in the mortgage dollar.  I have watched many videos of drawing tools on a smart phone, or using the old measure wheel, they will not work for homes that are not perfect squares or rectangles in my opinion.

I started as an appraisal trainee in December of 1996 and was first licensed in May of 1998.  I have trained over 15 successful appraisers during my career and the most difficult part of the appraisal process over this time was the measuring process.  I take my trainees to about 2-4 homes a day and have them watch me measure then as they feel confident, have them measure behind me so we both have sketches, and finally after about 10 months or so, will let them measure easy to moderately easy floorplans that I already have measured either prior to them coming to the property or in the past.  Measuring a home to ANSI standards that is not a basic house takes skill and years of experience.  

Having Realtors or anybody else (other than experienced individuals, not just appraisers) measure the exterior dimentions of a house (especially in 120 degree heat, rain, or snow) will not only slow the process down, it will pollute the entire market with appraisals of incorrect square footage.  Sure, sometimes it will be only a 100 sf or so, but on large or complex floorplans, one wrong angle can make it almost impossible to reconcile the sketch and when that happens we could see 10 to 20% variations of livable square footage.

Now, lets get into the WHY are they offering this Desktop Appraisal.  From what I can gather, it is not a Cost issue, and that is good because I think this will increase the cost of an appraisal, not just a little bit, but a lot over time.  Speed as the mortgage industry wants to make more money faster, I suppose all of us do, but keep in mind, a mortgage brings the lender between 1-4% of the loan amount (on a $500k home, that is $5k to $20k), not including the interest being paid on the mortgage.  The average appraiser is compensated $500 an appraisal for a "typical" full appraisal, which can take between 3 to 12 hours to complete (including inspection, paper-work, research, analysis, inspecting comparable properties, etc.).  Having an appraiser now sit at their desk looking at 3rd party gathered data will lose the "rating / feel" the appraiser gathers while doing an interior inspection and reviewing / zooming into photos will actually take more time than the physical inspection.  Also, now a 3rd party has to gather that data, sounds easy, but it will be a logistical / scheduling nightmare.  Time will tell.  Discrimination is also a reason for the desktop appraisal, keep the appraiser separated from home-owner so there can be no discrimination.  I have no doubt there has been cases of this, I haven't personally seen one, but I feel this would be better weeded out (if thought to have happened) by having a second appraisal.  Sure there is some more associated cost, but if it stops discrimination, that is a good thing.

The final reason that I personally believe the Desktop appraisals are here for good is corporate greed.  AMC's are appraisal management companies and are one of the biggest components to hurt consumers in the mortgage process.  I will give you an example.  Lender Y uses an AMC (AMC X for this example) to handle their mortgage appraisals.  Lender Y charges the consumer $600 for their appraisal, then orders the appraisal from AMC X.  AMC X collects $250 of the $600 fee and hires an appraiser from their pool of appraisers.  The appraiser gets the assignment, completes the appraisal, and is paid $350.  Well this seems okay, except, what appraisers would work for AMC X when they could work for Lender Z, which uses a portal to control the appraiser panel and collects a $25 fee to keep the separation between Loan Officer and appraiser (which is needed by the way), so an appraiser working for Lender Z, gets an appraisal fee of $575 for the same work.  Good appraisers work for Lender Z and perform more detailed appraisals than for Lender Y, because the best and most experienced appraisers don't need to work for Lender Y.  AMC's have created some software on mobile phones to use on these desktops and appraisers who are not on their panel, can't use or buy this software.  

Direct lender's who use appraisal portals like the Mercury Network, Appraisal Shield, Lender X, Appraisal Port, etc. will now have to order another job from another vendor and manage the timing of everything.  AMC's know this will bog down the direct lender appraisal departments, and force them to join AMC's and again reduce the quality of overall appraisals, making the profit margins even greater for the AMC's.

The hypocrisy now is Fannie Mae will require all appraisers to measure homes using the ANSI Standard Z765-2021 starting April 1st 2022.  This is actually a great thing, my firm and the previous firm I worked for and trained many appraisers have always used ANSI Standards to measure a home, so this is not a change that really effects our firm.  There are appraisers however, that use the assessors dimensions when providing the lender a sketch and again, as I have discussed in previous blogs can often times be off greater than 10-20% or just incorrect floorplans all together.  So on one hand, Fannie Mae is cracking down on appraisers to ensure all appraisers are using the same standard and on the other hand, they are allowing Uber drivers to measure homes and have consumers rely on that square footage for one of the biggest purchases of their lives.  

In summary, the Desktop appraisal will not make the appraisal process any faster or any less expensive, but will more than likely increase the overall time and cost more to provide this service.  An excellent example is the Judicial system, there are only so many judges and there is time required to perform the judicial system analyze the facts, and make a decision.  Should the courts go out and hire grocery store clerks to hear cases to speed up the process?  No of course not.  This is an extreme example, but if Fannie Mae and Freddie Mac want to speed up the appraisal time, the following steps could be done that are not currently being done:

• Require lender's to order purchase appraisals immediately once they received the loan approval.  This is not being done, they are waiting until after the inspection period of 10 - 20 days, to order the appraisal in fear of absorbing an appraisal cost if the buyer's back out of the loan.  Well this becomes a bottle neck because the majority of purchase loans close at the end of the month, so waiting until the end of the month to order an appraisal that needs to be completed by the end of the month doesn't work.  

• Allow desktops for special situations, similar to the temporary COVID-19 desktops, require surveys from realtors (almost all software developer's have apps for this already).  I requires home-owners and / or realtors to take photos on an app that geo-codes the photos and write down features, etc.  Use assessors records square footages, as at least this is what the market assumes the property to be.  This will stop the databases from being polluted with more incorrect square footage data that will harm consumers when John and Jane sell the home they purchased that was measured by a third party measuring app and now use that square footage to market their home for a new sale (that is 400 sf larger than reality or vise versa).

• Create a better form that incorporates USPAP requirements and Fannie / Freddie requirements in the form to eliminate the ticky tack revision rates.  This is primarily caused by a form that is basically made for Fannie or Freddie and doesn't have space for narrative for major USPAP requirements, so the appraisers have to find places and add text addendum pages, which make the under-writing / review process time consuming as there is no standard place to put all the information (including FHA/HUD required information on FHA insured loans).  I AM AWARE THAT A NEW FORM IS IN THE DEVELOPMENT STAGES AND I BELIEVE THIS FORM FOR RESIDENTIAL APPRAISAL REPORTING WILL MAKE THE REVIEW PROCESS MUCH FASTER AS IT IS A FORM THAT ALLOWS FOR TEXT ADDENDUMS RIGHT AT EACH SOURCE.  MY SOURCES TELL ME THIS WILL ROLL OUT HOPEFULLY IN 2023.

These three things should get the speed from ordering an appraisal to delivering an appraisal down by 50% and keep the UAD data base accurate as can be.

If you are now reading this, you have read a lot of opinions by me and my take on this.  As a firm we have and are willing to adapt to technology and provide the best possible appraisal valuations and the most accurate measurements of homes (as this is not an OPINION).  Remember, an opinion of value is an opinion.  The measurements of the home are facts, we can't rely on a phone app and an Uber driver for the fact.  By the way, Uber driver references are just to make a point and refer to anybody that will be measuring a home that is not properly trained to ANSI standards.

Here are some links for more information:

Desktop Appraisal Fact Sheet

Fannie Mae Article

 

By now, most everybody in the industry realizes that exterior appraisal valuations are here to stay but how do homeowner's provide recent improvement data to the appraiser without compromising or trying to influence an appraisal outcome?  The short answer is "Be Prepared".  In our firm, on all exterior appraisal assignments (or desktop assignments) we send an owner survey via email and text that allows the homeowner to provide photos that are geocoded & time stamped along with notes for each component of the home with their cell phone (via a free app) and usually only takes 15 minutes.  This allows homeowners to participate in the appraisal process by providing valuable data regarding remodeling, features, surfaces, etc.

Not every appraisal firm uses this technology, so then what?  Well as a homeowner, you can provide a detailed list of improvements performed, with dates, and estimated actual costs.  This along with photos in a word document that can be sent via PDF to your lender and passed on to the appraiser with provide important data regarding the interior condition, upgrades, and quality of your home.  

Areas of importance are flooring, kitchen, bathrooms, trim, mechanical items (HVAC / solar / water heater), paint, patio areas, pool areas, etc.  Good rear photos & side photos are also helpful when performing an exterior appraisal assignment.  Also, it is important to note that for an appraiser to value Solar, the solar system needs to be owned with no encumbrances (loans) tied to the solar system.  Leased solar systems are considered personal property.  Remember that your home is collateral for a loan and a solar system with a loan, would have to satisfied if in the unfortunate circumstance of defaulting on your mortgage, thus can not be considered.

Now with all that being said, nothing beats an interior inspection and full appraisal for many reasons, but primarily for the appraiser seeing the improvements that have been performed and the overall appeal of your home.  In addition and probably the most important benefit is a livable area measurement.  I have written blogs regarding this in the past, but we are seeing about 20% of homes that are under or over assessed because of incorrect assessors square footage.  Sometimes, there is only a small variance, but often there are large discrepancies of 200 to 1,000 sq.ft.  This can make a big difference on value and cannot be realized from an exterior appraisal.  If you feel like there may be a large discrepancy, request a full appraisal.  If you are purchasing a home without a mortgage, hire an appraiser to measure the home during your inspection period.  The stories I could share about homeowners who for example thought they purchased a 4,000 sf home to find out their home is only 3,100 sf, but paid cash and never had it measured during the inspection period could fill a blog by itself.  

So in summary, be proactive, ask your loan officer what kind of appraisal is being ordered, this will save you time in the long run.  Before applying for a mortgage, have a list made up of all improvements you have done to the property in the past.  This will also be helpful when you sell your home.  

 

Everything you must know about VA Home Loans

by: Myriel Legaspi / Phil Georgiades, VA Home Loan Centers (877) 432-5626

What began as an act by Congress meant to reward the effort of our brave men and women in uniform returning home from World War 2 has become one of the best, if not the best, home loan programs available. The acclamation of these home loans stems from the fact that they offer incentives that are not available in any other home loan. 

VA Home Loan History

The first iteration of VA home loans happened on June 22, 1944, as part of the Servicemen's Readjustment Act, signed into law by President Franklin D. Roosevelt. This version of the VA loan was exclusive for Active Duty Service Members and Veterans as long as they used it within two years after their military service ended.

About twenty-six years later, the VA loan went through some more changes with the Veterans Housing Act's signing on October 23, 1970, by President Richard Nixon. This new law saw the removal of the two-year termination date. Eventually, on October 28, 1992, the Veteran Home Loan Program Amendments were signed into law by President George H.W. Bush. This new law saw the extension of benefits to members of the National Guard and military reserves.

The most recent changes made to VA home loans happened on June 25^, 2019, by the signing of the Bluewater Navy Veterans Act by President Donald Trump. This law saw the removal of loan limits, which the VA placed depending on the county. The law also made some changes to the VA funding fee by increasing it for Active Duty Service Members and lowering it for members of the National Guard and military reserves.

VA Home Loan Benefits  

The constant changes made to VA home loans have allowed 22 million borrowers to become homeowners. This is because these loans have some great benefits, including:

-          No Down Payment Requirements.

-          Low-Interest Rates.  

-          Lower Monthly Payments.

-          No Mortgage Insurance Premiums

-          No Prepayment Penalties

Additionally, the VA loan can also be used to finance the funding fee itself. They can also be taken out in either 15 or 30-year fixed-rate mortgages.

In addition to these great benefits, VA home loans are now free from loan limits allowing borrowers the opportunity to purchase a property anywhere in the country without having to limit themselves based on a limit created by the VA. The only limit now is the borrower's ability to make their monthly payments with lenders like VA Home Loan Centers having loan limits as high as $5 million for eligible applicants.

However, the loan limit removal is meant for first-time borrowers only. Any borrower with more than one active VA loan is still required to adhere to the VA loan limit, which as of January 1, 2021, at $548,250 in most counties. Although to enjoy these benefits, the borrower is required to meet the loan eligibility requirements.      

VA Home Loan Eligibility Requirements 

Meeting VA loan requirements depend upon the applicant meeting military service, property, income, and credit score requirements.

-          Military Service Requirements

In addition to the applicant being an Active Duty Service Member, Veteran, or a qualifying spouse, they must also meet service requirements set up by the VA. These include:

·         Ninety consecutive days of active duty service during wartime or 181 days during peacetime.

·         Six years of service if the applicant served on the National Guard or military reserves.

·         An eligible spouse must have lost their loved one while in active duty or as a direct result of a service-related disability.

-          Income Requirements

Having a qualifying income requires the applicant to have an income that proves their ability to make their monthly mortgage payments and any outstanding debts. Another eligibility requirement for income is making sure that the applicant meets the VA compensating factor requirements. Moreover, an eligible income must come from one of the following:

·         Social Security

·         VA Disability

·         Full-Time Job

·         Part-Time Job, for at least two years.

·         Self Employed for at least two years.

·         1099 for years.

·         Retirement or Pension.

·         Seasonal Job for at least two years.

·         Child Support for three-years.

·         Alimony with a three-year continuance.

·         Rental income reported to the IRS.

Other forms of income, such as unemployment, GI Bill basic housing allowance, cash payments, and workers compensation, are not deemed eligible by the VA.

-          Credit Score Requirements

The VA does not have a set credit score requirement, and it is up to the lenders. Most lenders have a credit score requirement of 640. However, some of them are willing to assist applicants with low credit scores. How willing lenders are to give out a loan to someone with a low credit score depends on the applicant's late payment history, mortgage payments, and possible collections.

-          Property Requirements

Properties that are eligible for the VA home loan must meet specific requirements like being a:

·         Single Family Residence is safe to move into without any health or safety hazards present at the time of purchase.

·         A Multi-Family Dwelling of up to four units, without any health or safety hazards. The applicant must also occupy one of the rooms.

·         Condos and Townhomes, but the VA must approve the condo. If the applicant is unsure or if the condo is not approved, they can submit it for VA approval.

·         Manufactured Homes and mobile homes, but mobile homes must be doublewides, and both of them must be set on a permanent foundation.

Some properties do not qualify for the VA home loan, and these are homes located in flood hazard areas with no flood insurance and Airport Noise Zones 3 (Very Noisy). Other properties that are not eligible are cooperatives, timeshares, and non-VA-approved condos.

VA Refinancing Loans

The VA Home Loan is not only for applicants looking to purchase a home. The loan can also be used to refinance an existing property. The VA offers two types of refinancing loans: Interest Rates Reduction Loans and Cash-Out Refinance Loans.

-          Interest Rate Reduction Loans (IRRRL)

These are sometimes called Streamlined loans, which can help in refinancing an existing loan on a property with a new lower interest VA loan. The refinancing process is straightforward and can also lower out-of-pocket expenses due to its ability to finance both fees and closing costs. This loan cannot be used for cash-out on equity, and borrowers can borrow up to 100% of the current loan amount.

Eligibility for this loan requires the applicant to prove that they are currently occupying the property. They must also prove that all mortgage payments have been made on time for the last 12 months.

-          Cash-Out Refinance Loans

The VA also has loans that are meant for borrowers who want to cash out on home equity from either a conventional or a VA home loan. The VA Cash-Out Refinancing loan can be used on any property regardless of whether the original loan was administered by the FHA, USDA, VA, or conventionally. The cashed-out money can be used to pay off debt, finance home improvements, or finance an emergency.

Up to 100% of the current home value can be refinanced, and it can be used to finance the funding fee and the closing costs. Additionally, applying for these loans also requires applicants to follow underwriting guidelines established by the VA.

Conclusion

Using the information provided above will allow current and former military members to make an informed decision when using a VA loan on their future home. These loans have helped more than 22 million people achieve the dream of homeownership.

West Valley Appraisal Services has posted this informative Blog to help Veterans better understand their VA Home Loan benefits.  This article was created by a "for profit" 3rd party mortgage broker specializing in VA home loans.  West Valley Appraisal Services does not endorse VA Home Loan Centers or any independent mortgage broker.

 

 

 

How to prepare your home for an appraisal during the COVID-19 era:

Social distancing and limited contact measures have drastically increased over the past 30 days.  An invisible enemy has attacked the United States and much of the world.  Business must continue and as far as mortgages and appraisals go, homes still need to be appraised for mortgage financing purposes.  So, what should appraisers and home owners do to maintain social distancing and to protect one another.

APPRAISER RESPONSIBILITIES:

1.  The appraiser should be free of any symptoms including coughing, fever, etc.  At West Valley Appraisal Services, the appraiser(s) that represent our company, will only inspect a property if and only if they have no symptoms, no COVID-19 tests outstanding, and no known contact with anybody known to have the COVID-19 virus.

2.  The appraiser should wear gloves to avoid any physical touching of any surface of the home (skin to surface).  At West Valley Appraisal Services, the appraiser(s) that represent our company will wear clean rubber gloves at every inspection.

3.  The appraiser should respectfully inquire whether anyone in the home, or present during inspection, is ill or has been exposed to anyone with COVID-19.

HOMEOWNER RESPONSIBILITIES:

1.  Please have all lights on and doors / gates opened prior to the appraiser arriving at the property.  At West Valley Appraisal Services, the appraiser will first inspect the exterior of the property.  Open the garage and keep any pets inside (or off the property) for the first phase of the appraisal inspection.

2.  Once the appraiser is done with the exterior appraisal inspection, please put the pets in the backyard if possible.  Occupants are advised to also move to the the backyard or keep at least six foot distance from the appraiser as he or she moves throughout the home taking notes and photos of the interior of the property.

3.  If somebody is sick or has an outstanding COVID-19 test, please notify the appraiser prior to the appraisal inspection to discuss alternative inspection options / times.  It is critical to maintain the CDC guidelines throughout the process.  

4.  Any information the home owner / real estate agent would like to share with the appraiser (upgrades, solar information, improvements, etc.) need to be delivered to the appraiser via email in digital format.  No paper copies.

5.  At the end of the appraisal inspection, the appraiser will let themselves out, please secure your home, including gates / garage door.

Thank you so much for your help as the home occupant to ensure the safety of not only yourselves, but the appraiser and the general public.

Sincerely,

Jason Clow (Owner)

West Valley Appraisal Services

appraisals@wvas.email

Office: 602-717-8450

Fax: 623-349-0652

Appraisal Waivers (Risks & Rewards)

by Jason Clow, owner and founder of West Valley Appraisal Services
11/16/2019

I am going to preface my blog, stating that any information, examples, etc. are regarding residential properties from my area of expertise in Maricopa County Arizona (the fourth largest county in the United States).  For reference, I have been an appraiser in Maricopa County for over 20 years and a Realtor in Maricopa County for nearly 20 years.

Appraisal Waivers for residential properties really started in early 2017 for low Loan to Value (LTV) mortgages.  Currently they are being used in a much wider range of mortgage products and for a larger pool of borrowers.  Currently (taken from the Fannie Mae website (dated 08/07/2019).  The following link shows the list of the criteria regarding qualifying for an AW (appraisal waiver): 

https://www.fanniemae.com/content/guide/selling/b4/1.4/10.html

Fannie Mae has been collecting information / data from appraisers for years on all mortgage transactions that appraisals were performed to assist in the AVM (Automated Valuation Model).  What is an AVM?  Well it is a computer-generated appraisal to provide a quick risk assessment based on what the AVM states the value range is of a specific residential property.  Basically, borrowers with good credit, good equity (based on the AVM) for refinances, and a typical down payment putting the loan to AVM value ration in a low risk scenario. 

Why would Fannie Mae allow loans to be funded without an appraisal?  Well the simple answer is simplification of the mortgage process, a reduction in cost associated with the loan to the consumer, and confidence in collected data from previous appraisals over the years.  It is basically an accepted risk tolerance for a specific borrower. 

What are the risks associated with appraisal waivers on the overall real estate market (regarding Maricopa County, but could possibly be applied to other cities and counties throughout the U.S.)?

1. Computer collected data can not determine quality differences or differences in conditions / upgrades, or any improvements performed / or damage done since the last real appraisal was completed. This can result in a borrower purchasing a home that can be drastically above what the actual market can support (see real life examples below).
2. Although, yes it can speed up the loan / purchase time frame, have you ever asked yourself why anybody would want to make one of or the largest purchase decision of their life, and have that process sped up an additional week or so? What would you be giving up? Well a physical measurement of the home to ensure that it is the square footage you are purchasing; A professional appraisers inspection and rating of the home based on review of other sales in the market area; A review of the actual most similar comparable sales available and what others were willing to pay for them; And finally having peace of mind knowing that a licensed / educated appraiser agrees that the opinion of market value is current and supported.
3. Allowing people and entities interested in the financial gain attained through a residential mortgage loan value the property. What does this mean? Well, on a $300,000 purchase, the real estate appraiser typically earns 0.1 to 0.2% of the purchase price for their non-biased opinion of value (appraisal fees are not based on sales price or value, but rather on complexity of the assignment), while realtors involved in the transaction typically earn 4-7% of the $300,000 purchase price, and lenders typically earn between 2-7% of the loan amount (the higher end is typically only on higher interest / more risk loans).
4. Appraisal waivers can increase prices drastically, which is good for residents in the communities; however, this is an artificial inflation, and trying to sell your home for the inflated price could result in long marketing times, unrealistic expectations, damages in planning, and pricing out buyers.
5. The actual loss of new information to collect for Fannie Mae’s AVM (example would be a home that sold three years ago not remodeled, then re-sold to an appraisal waiver buyer, the AVM would not have collected that information for future AVM’s).
6. There are a lot of other flaws in this process, but this touches on a few of them.

What are the benefits associated with appraisal waivers for individuals involved in a transaction an appraisal waiver was allowed?

• For well qualified borrowers with real equity in their property, the cost involved with the appraisal is eliminated and the loan can typically close a few weeks sooner.
• Savvy individuals who already have a good handle on property values, etc. can eliminate an unnecessary cost.
• Lenders can streamline the process. I am sure everybody has heard the terms for super-fast loans, well an appraisal is a non-biased process historically that determined the market value of the property, which could often dictate lending limits, etc.
• There are other benefits; however, this blog is focused more of the dangers and/or risks involved.

Below is a list of three real life examples I have personally had in the past six months regarding failure of appraisal waivers.  Two are as an appraiser and one is as a Realtor.

Example 1.

I was representing a client to sell their home, so I have my Realtor hat on.  As a Realtor my job and obligation is to assist my client to obtain the best sales price for their property as possible and protect the interests of my client.  I am going to use false numbers, but similar % differences for reference.

I took the listing and we discussed the initial list price.  This home was in a strange market with differing quality of homes located basically across main / different streets.  3,000 sq.ft. homes on one side of the street would typically sell for $500,000+-, 3,000 sq.ft. homes between the two main streets the same quality of home would typically $400,000+-, and 3,000 sq.ft. homes to the south of the main street would typically sell for $325,000+-.  This is all with-in about a two-mile radius, with limited (recent sales in the middle section, but historic data coupled with current data showed these differences.  The market data in the exact micro market was showing a list price of approximately $425,000 on the high end.  I showed my client all the market data and they decided to list the home on the lower side of the historically superior neighborhood.  So, we listed the home, with the understanding, they would be willing to lower the price after a few weeks on the market to a price point that would attract more foot traffic.

With-in the first week we had a few showings, and we received an offer.  The offer was negotiated and an agreed upon sales price was made.  This contracted price was well above market value; however, automated AVM’s free to the public (just google find your homes value), showed a value close to the contracted price.  I told them that is due to the neighborhood on larger lots with superior community amenities, better setbacks, and better architecture and I prepared her for the appraisal process.  We had a plan in place, but again, my job as a Realtor is to obtain the highest sales price available.  As an appraiser, the contracted price was well above market value.  Well, in a few weeks, we found out that the buyer had an appraisal waiver, and the home was never appraised and closed at the contracted price.  This now created a recent arm’s length sale in this community like the historically higher priced community, just across the street.  Since this sale, there has been another home that has been listed and not yet contracted.  This micro market just jumped 10%.  Sure, this can happen with all cash buyers also, so this isn’t the first time I have seen this, but the first time with a buyer that needed a mortgage.  Who does this hurt?  Well it hurts all buyers in the near future, the buyer of this house, etc.  Had they had a professional appraisal; it is very possible the home could have been purchased for tens of thousands less.

Example 2.

This example is as an appraiser.  Recently, I was assigned to appraise a property for a home equity line of credit.  The owners / borrowers recently purchased the home with over 20% down and received an appraisal waiver.  Now they wanted to get a HELOC (home equity line of credit). 

As I do on all residential appraisals, I physically measured the home.  I immediate noticed that the square footage of the home was off.  This happens all the time, that there are large discrepancies in square footage.  The home was 15% smaller than what they thought they were buying.  Not only did the owner pay more than the home was worth with the marketed square footage they thought they were buying, now the home is 570 sq.ft. smaller.  The market value of the home was well below what they purchased the home for just a few months ago, as there was no appraisal / measurement made on the property.

Example 3. 

This example is as an appraiser.  Recently, I was assigned to appraise a property for a home equity line of credit.  The owners / borrowers recently purchased the home with over 20% down and received an appraisal waiver.  Now they wanted to get a HELOC, very similar to Example 2.

I physically measured the home like always and performed my appraisal (and the physically measured square footage was very similar to the assessors square footage).  The home was sold in average condition with minimal remodeling / updating performed in the past 15 years (this home was built in the early 80’s) but priced like a remodeled home, while the market norm and all other sales near the price point this home was purchased at were complete remodels.  There was a lot of market data available in the community, and the range of sales for the same floor plan was $190,000 to $300,000 (this also including things like site size, pools, etc.).  Homes that were in very average condition similar to the Subject property were selling at the very low end, while the remodeled homes with new surfaces (quartz / granite counter tops, new flooring, new bathrooms, new trim, new roofs, newer dual pane windows, etc.). 

Needless to say, my appraisal utilized comparable properties in similar condition (not remodeled) and was much less than the original purchase price a few months ago, while the market was slightly increasing. 

There are other examples of the damages that can be caused by appraisal waivers, as computers can’t replace professional experienced appraisers who examine all aspects of the property including but not limited to condition, quality, location, site size, site amenities, curb appeal, square footage, garages, etc.

So in summation, this is just a blog entry to try to inform any readers that in my opinion, if you are buying a home regardless of what the “public” information states or what AVM’s say the value is, purchasing a private appraisal (in an instance where you quality for an appraisal waiver) would be a small price to pay if something is not noticed or misrepresented in the buyer’s research.  I also recommend always getting a home inspection on any home you purchase to find out if there are any major issues that can cause what seems like a value to be a nightmare.

If getting a private appraisal takes an additional week, so be it, when making the largest purchases in a typical person’s life, gathering information can only help the situation.  Just like finding your future spouse, you don’t meet and get married in 30 days, you have an “inspection period” for better terms to determine if this is the best decision.

by Jason Clow, owner and founder of West Valley Appraisal Services
07/29/2019

Through my 22 years of residential appraisal experience in the Maricopa County market, I have been asked countless times, “Should I get an appraisal before listing or buying a home?”.  The short answer is “YES”.  In this month’s blog, I will go over the pros and cons of ordering and having a private appraisal for each instance, and you can decide what is best for you.

Selling a home, why is a professional private appraisal a good idea?

1. Get an accurate measured square footage of your home, many times the square footage is much different than what the county assessors records indicates. If it is much smaller than the assessor’s records indicate an appraisal on the front end can often allow the owners to list the property accurately and avoid possible issues with a lender ordered an appraisal, upset buyers, fallout contracts, and piece of mind. An actual measurement provides the market accepted livable square footage of your property.
2. Know the market based on actual sales and market trends. Realtors are great and are always looking to get the highest possible sales price on your home; however, to over-price a home is not always good. Negative market stigma can often come from initially listing your home well above market value, and the professional Realtors that work your area will often over-look your property over time, even when you eventually lower the price in the market value range.
3. Understand the positive and negative features of your home. A private appraisal will often discuss the positive elements of your home, distinguish between “personal property & real property”, and call it like it is based on sales in your neighborhood and/or competing neighborhoods.
4. Piece of mind knowing your listing price is supported in the market, so you can plan accordingly on a realistic sales price of your property.
5. Typical appraisal costs in Maricopa County range from $400 (for basic homes) to $1,000 (for complex properties). This cost is minimal when considering the marketing power of having a personal appraisal to provide pease of mine to the potential buyers that the property is “worth” the asking price.

Buying a home, why is a professional private appraisal a good idea (especially when paying cash)?

1. Know the actual square footage of the livable area and other amenities. As noted above, assessor’s records are often wrong, and you don’t want to be purchasing a new home thinking it is 2,900 sq.ft. and it is really 2,600 sq.ft., especially when the home is priced as a 2,900 sq.ft. home. It is always the buyer’s responsibility to confirm the square footage, per the purchase contract. Typically, in the Maricopa County market, buyers have a 10-day inspection period to investigate their new home, that would be a great time to get a private appraisal.
2. Know what the market supports, based on the recent sales in the market area. Often, individual markets / subdivisions can vary with-in a couple of blocks, and just because homes on the other side of the street have sold for a certain price, doesn’t mean homes on your side of the street sell for the same price.
3. Know the “external” negative features of your home like traffic, power lines, commercial influences, etc. A private appraisal will reflect the appraiser’s supported opinion on the influence on value of things like a busy road, commercial, cell phone tower, power line views, etc. Often, people move from other parts of the country where certain external influences do not make much of a difference; however, in a market like Maricopa County, these influences could make the home your purchasing much less appealing in the eyes of the overall market.
4. Piece of mind knowing that your offer price is supported, and the home is worth what it is being marketed as.

Think of it this way, getting a private appraisal on a property you are selling or buying is like taking a used car to a mechanic prior to selling or purchasing.  Knowing the most information about the property can and will assist in making the best financial decisions regarding that property.