When do you need an appraisal?

It’s finally happened — after months of searching, you’ve found your dream home. It’s the perfect size for your growing family, the kitchen was just remodeled and there’s a huge deck for entertaining. And best of all, the seller accepted your offer!

As we near your closing date, your lender will want to verify the home’s value with an appraisal. This might sound nerve-wracking, but don’t worry: Appraisals protect you from overpaying.

Let’s dive into appraisals to demystify the process:

When do you need an appraisal?
If you’re taking out a mortgage to buy a new home, the lender will require an appraisal. The appraiser gives an independent estimate of the property based on recent sales data of similar homes.

When your mortgage amount matches the appraised price of the home, you know that you have a good loan-to-value ratio — and aren’t paying more than you should be.

What does an appraiser look for?
An appraiser will physically measure the home’s square footage and visually inspect the entire property. They’ll note things like:

  • Floor plan functionality and the number of bedrooms and bathrooms
  • Age of the house and its overall appearance
  • Value of any recent updates or remodeling
  • Size of the lot
  • Desirability of the surrounding neighborhood

Comparing all of that against similar nearby homes sold within the last 90 days, the appraiser arrives at your home’s value.

What if it’s valued for less than you expected?
Let’s say you agreed to buy the property for $250,000 but the appraisal came in at $225,000. Your lender won’t approve a loan for more than the appraised price.

If you still want to buy the home, we can negotiate a lower price with the seller or challenge the appraisal and pay for a second opinion.

Another option is to walk away. This may not sound ideal, and it will probably be hard to do. But our goal is to get you the right home at the best price.

If an appraisal comes in low, we’ll discuss all the options available to make sure you don’t overpay.

Are you ready to find your dream home? Reach out today to get started.


6 Ways to Improve Your Odds of Getting a Home Loan

Buying a home is one of the biggest financial transactions people experience in their lives, so it’s no wonder financing is one of the biggest challenges buyers face when shopping for a new home. Even though the money components of home shopping can be stressful, the good news is there are steps you can take to ensure a smoother process and hopefully improve your odds of getting approved for your home loan.

1. Get Pre-Approved Early

If you want to be ready to make an offer on a home as soon as it hits the market, consider getting pre-approved or pre-qualified early in your home search. Having this pre-approval will help you move fast when you find the perfect home. It’s also typically the first thing an agent will ask you to do before helping you with your house-hunting journey. So getting it done before talking to an agent will show that you’re serious about buying and ready to start touring homes immediately.

According to the Zillow Group Consumer Housing Trends Report 2017, the vast majority of people who financed their home with a mortgage in the last year got pre-approved (92 percent), but it’s when they got approved that is the real differentiator.

A little over a third (35 percent) of buyers got pre-approved before involving an agent, while 50 percent waited until they involved an agent before they got pre-approved. Buyers who use an agent are more likely to obtain pre-approval than those who don’t work with an agent, indicating pre-approval is either a prerequisite to securing an agent or highly recommended by their agent.

2. Get a Fully Underwritten Pre-Approval

If you want to take an extra step and do some work upfront to get your offer to stand out, consider asking your lender for a fully underwritten pre-approval. This will not only help speed up the mortgage process even more, but it will also show that you are a serious buyer who has been vetted.

During this process, a lender will verify the information in your mortgage application, your income, assets and debts, and send your loan through the underwriting process so that you can quickly get final approval for a loan once you’ve found your home and your offer has been accepted. So long as your financial condition and creditworthiness hasn’t changed since you were pre-approved, and the home meets other “closing conditions,” you’ll be approved for the loan.

Doing this work up front will allow you to close quickly, opposed to the sometimes-lengthy time frame of these steps once the offer is accepted.

Even though getting fully underwritten sounds like more work initially, you’ll have to go through this process in the later stages of the process anyways, so getting it out of the way early may save time in the long run and help you stand out.

3. Get Your Credit in Check

One of the most crucial component of getting approved for a home loan is your credit score. Not only does it have a huge financial impact by helping determine your interest rate, but lenders will also use this number to determine if you will be approved for a loan. Getting a firm grasp on how your credit is early in your home search could give you the time you need to improve it, if necessary.

Even if you think your score is good enough, it’s a good idea to get a copy of your credit report and take time to review it for any errors. Sometimes, boosting your credit score can be as simple as disputing errors. But if you catch them late, you may not have enough time to dispute before locking in your mortgage rate.

It’s also a good idea to not open any additional lines of credit to reduce further scrutiny from lenders.

4. Demonstrate Financial Stability

When lenders assess whether you qualify for a loan, they’re looking to make sure you’ll be able to repay the loan and not default. You can improve your chances of qualifying by demonstrating that you’re financially stable.

Limiting your spending is one of the easier ways to make sure your lender doesn’t find any red flags when reviewing your financial history. Lenders generally don’t like to see a number of big purchases recently made. And just as much as they don’t like seeing big purchases, they don’t want to see that you’ve missed payments either, so make sure your payments are on time.

To help ensure that you aren’t likely to miss payments, lenders like to see work consistency. If you’re able to, try not to change jobs during this process as the lender might think you no longer have the same funds to afford the mortgage.

5. Put More Down

Even though coming up with enough money for a down payment is often a buyers’ biggest hurdle during the buying process, if you’re able to make a larger down payment (of 20 percent or more), you might up your odds of getting approved.

A large down payment can show lenders you’re serious about buying and have the money to prove it. Outside of a larger down payment giving off the impression that you’re more trustworthy as a borrower to a lender, it can also reduce the loan-to-value ratio, which can increase your chances of getting approved for your loan.

Not only is a larger down payment a plus for lenders, but it can also help make your offer look more attractive to sellers and help them feel more confident that your financing is secure, which could help increase your odds of landing the home over someone else.

6. Move Quickly Once Your Offer Is Accepted

Unfortunately, there are a number of ways mortgages can fall through once your offer is accepted. But if you’re able to speed up the loan, inspection and appraisal periods, you might find yourself coming out ahead.

In some markets, the appraisal can take a particularly long time. So, to speed this process up, ask your lender to order the appraisal the day your offer on the home is accepted. Getting it done quickly may give you time to address any issues that arise.

For example, if the home is appraised for less than the sale price, you can still make concessions with the seller in hopes of getting the loan to go through. Some buyers find luck by paying the difference in cash, getting a second opinion on the appraisal or asking the seller to reduce the price of the home. If the buyer and seller can’t come to an agreement on one of these terms in time, the pending sale can fall apart.

Another step you can take to ensure a smooth, speedy process is to schedule your general home inspection as soon as your offer is accepted. That way if the inspector finds something wrong, you’ll have time to bring in a specialist to take a look. In competitive markets, some buyers even opt to do a pre-inspection to make their offers more competitive, while also removing potential obstacles that could prevent them from getting the house.

4 Tips for Paying Off Your Mortgage Faster

Pay off the principal you borrowed more quickly, and you’ll own your home earlier, and pay less in loan interest. You may even save tens of thousands of dollars over the life of the loan.

So if you’re ready to own your home free and clear, here are some strategies for paying off your loan in less time:

  1. Make extra payments whenever possible

Regularly paying your mortgage is good, but making just one extra payment per year to the principal balance can help you pay off your mortgage even faster. You’ll increase the equity of your home, which is based on how much of the principal (outstanding loan balance) you’ve paid off. Plus you’ll also reduce both the outstanding loan balance, and the length of your loan.

Whether you have a 15- or 30-year mortgage, your amortization schedule shows the changes in how principal and interest payments lower your loan balance and the total interest paid over the years. When you make extra payments – whether monthly or periodically – you can reduce your loan amount or interest.

The simplest way to make an additional payment each year, without breaking the bank is adding in Additional Principal to payment. Let’s look at how this would work. You’ll take your monthly payment divided by 12 and put that amount in the Additional Principal Amount when setting up your automatic payment.

Monthly Payment = $2,000
Additional Principal= $166.67 (2,000 ÷ 12)
Total monthly Payment = $2,166.67

Even if you don’t sign up for AutoPay, you can make extra principal payments on a quarterly or semi-annual basis, or anytime you want, just be sure you’re allocating the payment to principal only. You’ll pay down your loan a little quicker, which will result in paying less interest over the loan’s lifetime.

You can even put windfalls into your mortgage. Big tax refund? Most taxpayers do receive a refund, and putting it toward your principal is a solid move for many homeowners. Maybe you receive a year-end bonus? Any amount – large or small – can help reduce your principal owed.

To compare payment plans, and the difference made when you add a little extra, see this Mortgage Calculator.

  1. Ensure bonus payments are paying off principal

Be sure you don’t just send in extra money; you’ll want to make sure all the money is applied as an extra principal payment. Go to your online account, and select One-Time Payment. Then choose Principal Reduction, and schedule a date to make the bonus payment.

Or, contact a PennyMac representative about sending and applying a bonus payment (such as that tax refund or year-end bonus), before sending it in.

  1. Refinance into a shorter-term loan

If you’ve paid down your loan, or you’ve received a raise at work and are bringing home more each month, then consider taking the next step – refinancing your loan into a shorter-term loan.*

For example, if you’re in a 30-year home loan, investigate PennyMac’s conventional fixed-rate 15-year loan. The monthly payment will be about 50-60% more, as you’re repaying your loan in half the time. But you could also benefit from a slightly lower interest rate, and cut total interest payments in half.

  1. Pay down other debts

The quicker you pay off other debts – particularly debts with high interest rates such as credit cards – the more cash you have to pay down mortgage principal.

In fact, you may even consider rolling any high-interest debts into a cash-out refinance; the rates are typically half to one-third the interest rate of a credit card.

If you have more than 20% equity already and an urgent home repair or an emergency comes up that requires cash, consider using either a cash-out refinance or obtaining a home equity line of credit (HELOC) to deal with surprises, versus a high-interest credit card.

As always, ensure that boosting payments and debt repayment options work well with your budget, and any check fees before embarking on any new payment approach.

Use any of these five tips to paying off your mortgage faster and you’ll be on your way to owning your home, payment-free in no time.

Be careful of the fall financial home follies

Autumn is your last chance to review, repair and remediate home issues that may break the bank account after winter arrives. Here are some expensive mistakes some homeowners make every fall – don’t be one of them. Set aside time (and a little cash) to clean up your household act.

Here’s a rundown of fall financial home follies:

1. Neglecting gutters. Both gutters and downspouts should be cleaned of last year’s debris (if you haven’t done it yet) and this year’s autumn leaves, before the snow and rains arrive. Gutters clogged by leaves can lead to water invading your roof and exterior walls. Downspouts should lead away from the house, as water that isn’t diverted can become a source of cracked driveways and ruined foundations (foundation repair could cost up to $11,200). In cold climates, gutters and downspouts can lead to ice dams, which can cause costly water damage to a home’s interior. As well, loose gutters can tear free due to the weight of snow and ice.

2. Overlooking windows. Homeowners in the know check out door and window frames for damage or leaky air gaps, while taking down window screens and putting up storm windows, which can cut heating costs. Heat gain and heat loss through windows take up 25%–30% of residential heating and cooling energy use, according to the U.S. Department of Energy. Consider adding weather stripping, double-paned or Energy Star-approved windows, caulking, or heavy curtains to prevent heated air from escaping, and increasing energy costs and decreasing comfort. Caulking should be done before freezing temperatures set in, says Tom Kraeutler, host of syndicated radio show The Money Pit.

3. Ignoring the chimney. Before kindling a cozy autumn fire, have your chimney examined and repaired, if necessary—or you may deal with home-destroying fires, chimney collapses or carbon monoxide poisoning, according to Tom Kraeutler. However, hiring the wrong chimney sweep can also be an autumn financial disaster, he points out, so research reviews and reputations.

4. Not reviewing the roof. Smart homeowners ensure the flashing (which covers gaps near chimneys and on roofs) is solid and won’t permit water intrusion. As well, are roof shingles missing? Now is the time to check — not after your upstairs bedroom becomes a waterlogged mess, or a leaky roof ruins your drywall. According to Homeadvisor.com, the cost of repairing water damage could run up to $8,000, while roof repairs only top out at $4,000 in extreme cases.

5. Skipping sealing. Autumn is the perfect time to seal your driveway and repair it – before freezing temps hit, after which sealants may not work well. Winter will bring additional exposure from de-icing agents like salt, which are “corrosive on your driveway,” Kraeutler says, and could lead to further cracking and deterioration. He points out that driveway sealing is often a DIY job.

6. Hesitating on the HVAC. Preventative maintenance or energy-efficient upgrades will lower your heating bills, spare you expensive emergency calls, and increase your heating system’s lifespan. If you’re considering selling your house in fall or winter, you’ll want to show off a functional heating system to buyers.

7. Procrastinating on purchases. Sure, you can pretend winter isn’t going to happen – if you live in sunny Southern California – but most of us need shovels, salt for deicing the sidewalk (and avoiding costly lawsuits) ice scrapers, and possibly even a snowblower. If you have a snowblower, check out these tips from Consumer Reports on how to make it winter-ready, before the first snow.

8. Putting off sale prep ’til spring. According to Consumer Reports, a host of issues can kill an upcoming home sale, including cracks in the foundation and hidden water damage. Don’t let problems start or worsen in the next six months – instead, address potential concerns proactively now, while there’s time.

9. Falling for fall scams. Your financial security may be at risk if you open your wallet for a scam targeting homeowners, such as lending “deals” a contractor might offer for making autumn upgrades. If you need to pay for home maintenance, remodeling or repairs, consider instead leveraging the equity in your home with a Cash-Out Refinance.

By avoiding these autumn money mistakes, you’ll save money, so you’ll have more dough for the upcoming holidays, or perhaps even for a trip in the new year.