Appraisals are being reviewed hard by lenders

In a market where prices have been declining lenders begin to take hard looks at appraisals that appear to be pushing the envelope in values. This is especially true of homes valued at over 750K. There are 2 types of reviews that your appraisal could be subjected to.

The first is a desk review. This is done in house by the lender and will entail a review of current comparables listed on MLS as compared with the comps used in the appraisal. If there is a discrepancy or if your appraisal seems to be at the very high end of the range of comps you can almost always count on a reduction of value. This is how the lender protects themselves from declining values. Remember, most lenders sell the loans on the secondary market and will reduce values to insure they are not stuck with a loan that does not meet loan - value (LTV) ratio criteria.

The second review requires a full second appraisal. This is ordered by the lender and they will use the appraiser of their choice. This almost always results in a reduction in value as appraisals are subject to interpretation. Your appraiser may give you the benefit of the doubt when using comps but an appraiser working for the lender will always lean towards the side of caution resulting in low end values. This will be problems for any loans that are above 60% loan to value ratios. Most loan programs provide rates that are scaled starting at 60% and the rates increase as the LTV increases.

For example: If you are refinancing a home that you have appraised for $1,000,000 and you are requesting an $800,000 loan you are requesting an 80% LTV loan. If the appraisal review returns a value of $900,000 you are now at 88.88% LTV. This means that you will either receive a higher rate to account for the mortgage being over 80% or will need to lower the first to $720,000 (80%) and take a second mortgage to reach $800,000.

In almost all cases there is some reduction of value. Also, the borrower pays for this review.

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