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Monday, June 12, 2006

Mortgage Appraisal Not Required?

I got a call from the mortgage lender to let me know that my loan didn't need an appraisal for approval.

Huh? I never heard of this. Apparently Fannie Mae has this option to waive an appraisal when you get a loan. They have a computer system that they run your purchase price, the property being purchased and supposedly your creditworthiness to determine what the risk is of the property not being worth what your buying it for.

The idea is they are cutting out more costs from the loan process. Instead of a $250-$350 appraisal it could now only cost $50 for an appraisal waiver.

I like the idea. Any options to drive down costs is a good thing by giving more flexibility to borrowers.

However, I am still going to get an appraisal. The appraisal will cost $300 so it will be a $250 opportunity cost ($300 [appraisal] - $50 [waiver] = $250 net cost) to get assurance that the property is really worth what I'm paying. Ofcourse I'm still leary because appraisals seem to always magically meet the agreed to price.

The lender instructed me to pick out my own appraiser if I decide to get an appraisal. I have always felt that appraisers picked by lenders often rubber stamp appraisals and I'll use this as an opportunity to try to find someone who I hope would be a more unbiased appraiser. I am going to use this petition signed by appraisers concerning pressure from lenders to conform to predetermined values as a starting point.

If I ever refinance I think I would always take the waiver since I already own the property.

24 Comments:

  • I agree that you should have the property appraised if you are buying an investment property. Although, if you intend to use the property as a residence, I believe you can use Realtor Comps to assure your purchase is inline.

    Investment properties, generally multi units or commercial properties don't have good comps. They are not generally identical or even close in the same neighborhood. So comps are a little more sporatic.

    One more thing that may or may not interest you. This is kind of scary... I don't know what your credit is, but it has been my experience that the banks will forgo appraisals if you are in the A+ category. Although, this system made it easy for me to purchase properties, I feel that in the wrong hands it would only stimulate more debt and make it easier for a person to drown.

    So, in short, be alert, be aware, and know for yourself what you can handle..not what the bank says you can.

    By Blogger D, at 9:27 AM  

  • Some additional info - I am buying this property FSBO and the comps in the area are very "uncomparable".

    I feel like the agreed price is not too far off, but I could easily see if the house appraises for a price that is $10-20K different than the agreed price (in either direction). That is why I feel like I really need an appraisal to make sure I didn't miss something.

    By Blogger 2million, at 9:59 AM  

  • Anyone have ideas on how to talk an appraisal price down?

    I have to fork $400 to each real estate I buy--appraisals that are required since I don't work with a local bank. The appraiser has a near monopoly and is impossible to work with even at $400. She knows her power... and its sucking me dry.

    Help, 2million readers!

    By Anonymous Katie, at 1:08 PM  

  • I do not know about you but I believe this is a bad time to buy property with a loan. The US Federal Reserve is fucked up because the US economy is experiencing "Stagflation", if they increase interest rates they will cause the economy to contract, if they reduce interest rates they allow more US dollars to be sent out to the World economy causing commodities to increase in price causing cost-push inflation and the economy contracts again.

    Lets just say the US economy is stuck between the devil and the deep blue sea.

    Having the US currency as the currency of trade for the World economy just magnifies the problem Worldwide, if the US increase interest rates, commodities prices goes down but the economy slows down, if the US economy lowers interest rates this releases more liquidity and commodities prices goes up, hyper-inflation happens in the World eocnomy, the World economy slows down.

    Don't buy any property with a heavy loan now, you might not be able to pay the interest rates or you may lose your job.

    Think smart, use your brain. Keep liquid.

    Anonymous Millionaire.

    By Anonymous Anonymous, at 11:43 PM  

  • I'm not too big on appraisals. For my residence it was waived since enough comps showed it to be reasonable. I'd rather be waiting for the August time frame before buying something now tho since people will be sweating it even more when they find many houses not getting sold. For investment properties I ran the numbers and found about what I would be willing to pay for the place, so appraisal again didn't matter too much to me if it wasn't required. As long as you get someone you trust that can do a good spot inspection. I'm with anonymous millionaire a bit on this too, I thought the economy may be in a bind and been a little bearish for a while now. I'm waiting for a good time to reinvest.

    By Blogger DD, at 11:55 AM  

  • Thank you dd for the vote of confidence.

    Very few people are as pessimistic as I am currently except maybe for Warren Buffet and George Soros who are seeing the head lights with the train running at full speed towards them.

    There is very little the rich or the super rich can do at this point in time to help the World economy except consolidate their position and get out of the way of the moving freight train.

    The US government has been printing too much US dollars (backed by nothing more than more US dollars) causing the global commodity prices around the World to go up. The US govt. basically uses the US dollar as a currency of trade to pump up the liquidity around the World, causing the World commodity prices to go up.

    What can they do, they can't do anything, if they stop printing US dollars the US economy slows down. If they continue to print US dollars, commodity prices goes up causing cost push inflation, cuasing the World economy and US economy to slow down.

    I am highlighting this because many people are going to be caught in the next World depression.

    Anonymous Millionaire.

    P/S Hopefully you are not going to be one of them.

    By Anonymous Anonymous, at 9:45 PM  

  • I wouldn't be buying any properties if I don't have to. Check out my article on How Much Will the Housing Market Fall.

    By Anonymous frugal, at 6:24 PM  

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