Tri-Valley Real Estate Blog

Who Pays for the Tri-Valley Home Appraisal?

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When purchasing a home or condominium throughout California’s Tri-Valley area, many buyers wonder who actually pays for the home appraisal. There are a lot of closing costs and different fees built-in for buyers and sellers in a purchase and sale agreement. Sellers pay for excise tax when selling the property and several courier fees all culminating into their own closing costs. Buyers also have several closing costs and one of those includes the appraisal.Who Pays for the Tri-Valley Home Appraisal?

In order for a lender to properly evaluate a property they must discover fair market value on a home.  Lenders will order a home appraisal for all borrowers to make sure that they’re not overpaying for a home and is the property is the proper value for what the borrower is requesting.

Federal banking regulations require that the lender order the appraisal. This is not something the buyers can do on their own. If the buyer was planning on purchasing a home with cash and they wish to have an appraisal conducted they would need to pay for it out of their own pocket. But, because it is the lender that is requesting the value, they will order the appraisal but still make the buyer pay for it. However, federal law also entitles all buyers to receive a copy of the completed appraisal.

Lenders will usually collect the cost of the appraisal upfront. If it is not collected upfront it will be added into the closing costs. Appraisals typically cost between $400 and $500 but appraisers can charge additional fees, especially if they need to make multiple trips for different reasons. Most of the time, and appraiser will be able to conduct the appraisal in one trip. Extenuating circumstances may prevent the appraiser from conducting the entire appraisal at the scheduled time. This could be due to a tenant or a seller that’s being unreasonable and not allowing the appraiser to tour the property or the home or for some reason there was a major part of the property that was an accessible at the time.

An appraisal is not a home inspection. Home inspections are simply a report on the structure and integrity of the property and the construction itself. An inspector will not base documented value to the home but may be able to tell buyer what the costs of replacing certain items could be. However, buyers should not take this into account when viewing the appraisal. Often times, buyers will say “the appraiser only said that this was worth $300 but my inspector said it was worth $500!” The appraiser is really the one that will determine the value of the home. Now, if there’s something that the appraiser has missed or has grossly undervalued in the home, the seller can certainly contest this. For instance: if the seller had upgraded a particular feature in the house that may not be visible to the outside with some high quality materials that could add a lot of value to the property, the seller can make note of this and asked that the appraisal be changed. However, it is up to the appraiser to determine the value in the end.

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If the property does not appraise for the borrowed amount, the buyer will either need to come up with the difference on their own or the seller will need to lower the price. If neither are willing to budget, the transaction will usually be terminated because financing will not be completed.

For more information on appraisals, Tri-Valley real estate or if you have questions on a particular property or transaction feel free to contact me today.

What is California Mortgage Insurance?

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Mortgage insurance, also referred to as PMI, or private mortgage insurance is typically only found on loans where the borrower did not make a minimum 20% down payment. This can be a big hurdle, especially for first-time homebuyers, to come up with a large down payment of at least $10,000 or more depending on the price of the home. A 20% down payment on a $500,000 home is $100,000, something very few first-time homebuyers are able to save. This is where mortgage insurance comes into play. Lenders will allow a borrower to make a down payment of less than 20% on certain types of loans including an FHA loan or VA loan and because of the lower down payment there needs to be some sort of mortgage insurance for the lender themselves. This is known as a private mortgage insurance or lenders mortgage insurance.What is California Mortgage Insurance?

Lenders want to make sure that if a borrower defaults on the loan and the lender has a risk of losing money, mortgage insurance will protect the lender by providing the money payable to the lender only to recoup any losses. Lenders tend to think that buyers who are unable to put 20% down might be more inclined to default on their loan. While this is true or not, lenders would still need to recoup the cost if the borrower defaults.

Mortgage insurance typically does not protect the borrower but it can still benefit the borrower. It allows the borrower to make a payment of less than 20%, which means that many borrowers would be able to be homeowners far sooner than have they saved the 20%. And even though it benefits the lender primarily, it is the borrower’s responsibility to pay the premium.

Mortgage insurance rates are based on the mortgage amount, loan terms, the down payment size, the borrower’s credit score and history. On average, the mortgage insurance rates are about $50 per month per $100,000 borrowed. Premiums can be paid up front or incorporated into the loan. Some insurance providers may offer discounts to borrowers with more modest incomes or higher downpayments but these are things to check with your lender about.

One good thing about the mortgage insurance is that it won’t last for the entire life of the loan. It is only required until the loans principal balance reaches 80% of the value of the home. Ironically the same amount should the borrower had put 20% down to begin with.

In 1998 the US Homeowners Protection Act required lenders to cancel the borrower paid mortgage insurance when the loan reached 78% of the appraised value or a sale price, whichever is less. This would mean that a borrower typically needs 22% equity in their home to have it automatically canceled. However, borrowers can call and request cancellation after a year or two of paying it or if the home can be appraised or valued at 80% of the loan.

Private mortgage insurance is also tax-deductible and is usually the least expensive option for low down payment borrowers. However, the Congress extends the tax break on a yearly basis so be sure to check with your lender on if this is still the case each year.

Private mortgage insurance can definitely benefit borrowers and that they don’t have to have the full 20% in order to buy a home but, you have to remember to cancel it when you can so that you don’t have to keep paying it when you don’t have to.

For more information on the different types of loans, lenders or options contact my office today.

Buyer’s Agent, Dual Agency and the Difference You Need to Know

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Most people understand what a real estate agent is and does.  A real estate agent is not just simply a job but a licensed position that requires continuing education to maintain their license and keep their job.For most people, the legalities and details of buying and selling property is not something that they want to deal with on their own. Many homeowners feel that they can try to sell their property on their own first, and if that doesn’t work,  hire the help of a real estate professional. Many first-time homebuyers don’t even realize that it can benefit them to have their own agent when buying a property, rather than going with the listing agent of the home they chose. This is where a buyers agent, a listing agent and dual agency come into play. [Read more…]

10 Questions You Should Ask When Buying a Condo

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Buying a condominium or a townhouse for that matter is very similar to a single-family home but there are distinct differences. You will be dealing with the homeowners association when you buy into a condo or a townhouse community, very similar to a subdivision that might be gated or part of an HOA. Not only will you be paying a monthly mortgage payment along with principal, interest, and homeowners insurance but you’ll also be paying fees directly to the homeowners association. There are specific questions you should ask before buying a condominium. With so many townhouse/condo associations and developments throughout the Tri-Valley area, this is a common issue that I have with a lot of homebuyers. It’s best to understand the implications and the details of buying a condo before jumping into the transaction. [Read more…]

How to Write Up an Offer and What to Offer

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If you’ve never written of a real estate offer before the process might seem overwhelming and confusing but it doesn’t have to be. One of the biggest things I tell any potential homebuyer is to make sure you have your own buyers agent before jumping into the real estate market. Buyers agent works solely for the homebuyer helping them throughout the process, offering tips, suggestions and advice not just on placing the offer, but on home inspections, financing, appraisals and anything else that might come along during the process. [Read more…]