You’re sure you’ve found your dream home: large closets, a big yard, and that extra bathroom you’ve needed for so long. Yes, it needs a bit of TLC, but with your vision and a few focused Saturdays, you know it will be just right. And it’s true; transforming the solid bones of a good house into a home that is uniquely yours really is a dream. However, when it comes to your lender, there is a big difference between a fixer-upper and a bad investment.
All mortgage lenders require an appraisal to help them determine the value of the property. Appraisals differ depending on the type of financing—conventional or government-insured—but all appraisers have an obligation to disclose issues that could affect the value of the property. Discussing your property details with an experienced loan officer, like the professionals at Castle & Cooke Mortgage, LLC, could help you avoid unexpected delays in financing.
So what kind of property issues may get in the way of lender financing? This is what lenders look for.
- Appraisal Valuation
Lenders base loan amounts on what they determine to be the value of the property. To determine the value, appraisers analyze not only the house itself but also similar houses in the neighborhood (comparables or “comps”), and current market trends. If the appraiser decides that the property is worth less than the agreed upon purchase price, the loan amount will be based on this value rather than the price. This could mean a smaller loan amount than you originally planned on.
This issue may be resolved in several ways but most likely you will want to renegotiate the purchase price to reflect the true market value.
What if my house appraises for more than the purchase price? Can I borrow more money?
Unfortunately, no. Lenders don’t like risk and if presented with two opinions of value (appraised value versus purchase price), they will always take the more conservative route and go with the lesser value. Regardless, you already have equity in the property and that’s good news!
- Deferred Maintenance
Homes are built to last a lifetime, but like most things, they require regular upkeep. If the house has not been well maintained, it has what lenders call “deferred maintenance.” This means anything from a yard full of weeds to a cracked foundation. Appraisers must disclose any deferred maintenance that could affect the value of the property, and lenders will most likely require any serious issues be resolved before funding the loan. So while the weeds won’t stop the loan from going through, issues such as electrical or plumbing problems, leaking pipes or broken windows may.
- Structural Integrity
Sometimes deferred maintenance is so severe, it can affect the structural integrity of the house. If an appraiser notes a sagging roof or evidence of a leak, the lender may request repairs and an inspection to ensure the repairs are completed properly before issuing final approval of a loan.
Similarly, an unstable foundation can affect the future value of a property and lenders may ask for an engineer’s report if the appraiser notes any signs of foundation problems. Large cracks in walls, a sagging floor, doors that won’t open or close easily, or a musty odor are all signs of an unstable foundation.
- Health and Safety
Properties with health and safety concerns are dangerous for you, but they are also risky for lenders. Government-backed loans such as FHA or VA loans are particularly concerned with safe living conditions and ask their appraisers to document a specific list of items. But in general, anything that could affect the health or safety of future homeowners might be flagged for repair before closing. This includes things like mold, broken handrails, exposed electrical wires, and problems with plumbing and heating.
No one wants to share their home with unwanted guests, but pests such as termites are more than just annoying, they can cause serious damage to the property. If evidence of an infestation is present, the lender will most likely ask for a pest inspection to determine if the property needs to be treated.
Beyond insects, dry rot and mold can damage properties and are considered pests. Pest inspectors will look for evidence of these, as well as the conditions that cause them, such as standing water.
- And there’s more
Lenders like predictability and anything out of the ordinary can raise red flags. Is your future home the only duplex for miles around? Is it a log cabin that is only accessible in the summer months? Lenders may not be able to determine the true value of properties like these and decide not to lend money on them. Be aware of anything that makes your property different from a typical home and discuss your concerns with your Castle & Cooke Mortgage loan officer ahead of loan submission.
Castle & Cooke Mortgage, LLC® (NMLS #1251) is a leading independent mortgage lender headquartered in Draper, Utah, with locations across the United States. Castle & Cooke Mortgage, LLC is not affiliated with, or endorsed by, the U.S. Government.
Restrictions may apply. Not all who apply will qualify. Program qualifications & offerings are subject to change at any time. Castle & Cooke Mortgage, LLC is not affiliated with, or endorsed by, the U.S. Government. Equal Housing Lender. Castle & Cooke Mortgage, LLC is licensed in AL, AR, AZ, CA, CO, CT, FL, GA, HI, ID, IL, IN, IA, KY, MD, MI, MS, MO, NE, NV, NM, NC, ND, OH, OK, OR, TN, TX, UT, WA, WI and WY. Licensed by the Arizona Department of Financial Institutions, Arizona Mortgage Banker: BK-0908287. Licensed by the Department of Business Oversight, under the California Residential Mortgage Lending Act License #4130740. Regulated by the Colorado Division of Real Estate. Georgia Residential Mortgage Licensee, License #43759. Illinois Residential Mortgage Licensee. Licensed by the Mississippi Department of Banker and Consumer Finance. Ohio Mortgage Loan Act Certificate of Registration #SM.502008.000. Oregon Mortgage Lending License #ML-4090. Washington #CL-1251.
Information contained in this Blog does not constitute legal, financial, or other professional advice or services and should not be used as a substitute for professional advice. The purpose of the Blog is to provide Castle & Cooke Mortgage, LLC’s opinions and general guidance on certain matters related to mortgages. The reader accepts full responsibility for use of the information contained herein.