What happens if the house appraises for less?

Congratulations. You’ve enter the housing market, gotten mortgage pre-approved, and made a successful offer on your dream house. But what happens if the house appraises for less than the purchase price?

In the ever changing Real Estate world, today we have a problem with a shortage of homes for sale. This means it is likely that a seller will get multiple offers well above the asking price. Sounds great for the seller, but this also means there may result with the appraisal, commonly known as “coming in low.”

There are many reasons why an appraisal may be low. In rapidly changing markets, home prices continue to increase which is something makes it difficult for appraisers. Maybe the agent made a mistake. Maybe the buyer pressured the agent to list it higher than it should have been. Maybe the appraiser made a mistake. Maybe multiple offers drove the price too high. Maybe the buyer needing to roll in closing costs pushed the sales price over the market value. Who knows. It happens, and it happens a lot more often than buyers and sellers may realize.

There are many other reasons too. If you get the news that the appraisal came in lower than the sales price, don’t panic. Almost all of the deals still close!

Understand the whole idea of the independent appraisal is that an unbiased, highly trained third party is there to protect the buyer and the lender. The buyer doesn’t want to pay more than fair value, and the lender is obviously concerned about their collateral.

Real Estate, Minnesota, Minneapolis, for sale, mortgage rates, interest rates

So What To Do If  The House Doesn’t Appraise For the Sales Price?

The first thing is to review the appraisal to see if it has obvious errors. I’m not talking opinion of value differences, I am talking actual errors. For example the house is 3000 square feet, and the appraiser has it at 2400 square feet.  Assuming an error, bringing it to the appraisers attention usually results in a quick fix.

TIP: If there is a measurement error, 99% of the time, the listing had the size too big. Few agents actually measure, while 100% of appraisers measure.

Have the agent gather what they believe are better comparable properties than the appraiser use. Don’t just give addresses. Give a detailed explanations of why they believe the appraiser should consider these homes instead.

TIP: Rare is it that the appraiser didn’t already consider the comparable you just submitted.

If there are obvious errors, or obvious poor comparible choices, there is the possibility of obtaining a new appraisal with a different appraiser. There are rules and guidelines to this process. It is not an easy route, plus the buyer would need to pay for the 2nd appraisal.

Options to make low appraisal deals still work?

Typically there are four routes when the appraisal is less than the sales price.

  1. Walk away. Any agent worth anything has written an appraisal contingency in the purchase agreement. This happens maybe less than 2% of the time.
  2. Buyer can pay cash out-of-pocket for the full difference between the purchase price and the appraisal. The down payment and all loan parameters will be based off the lower appraisal. This happens maybe 3% of the time.
  3. Seller drops the sales price to match the appraisal. They may piss and moan, but this happens in probably 70% of the cases. This is because cancelling doesn’t work for anyone, and putting the house back on the market is no guarantee you won’t get a similar appraisal down the line.
  4. Seller and buyer split the  difference somehow.  A common route is the seller lowers the price a bit, and the buyer pays a little more out-of-pocket. Another common route is that is the seller was paying some of the buyers closing costs, maybe they reduce or eliminate seller paid closing costs. This options happens maybe 25-% of the time.

Hopefully my math worked out to 100%, but as you can see, most real estate transactions that have an appraisal come in low still get to the closing table.


Get Pre-Approved Before You Start Looking

Get Pre-Approved Before You Start Looking for a home

Minneapolis, MN: People often make the mistake of starting a home search without knowing what they actually qualify for. Falling in love with a $400,000 home and finding out you qualify for $200,000 can be heartbreaking. Thinking a loan approval will be easy, only to find out you have issues, or don’t qualify for a program you think you do, is another concern.

Virtually no Realtor will show homes to clients who have not been pre-approved, and virtually no seller will accept any offer without a pre-approval letter for this very reason. Being pre-approved gives both you and the seller comfort that final approval for your loan should be fine.

Pre-approval gives you, your agent, and the sellers confidence in knowing can get a loan, and that you are shopping in the correct price range for your income and payment comfort level.

We recommend getting lender pre-approved about 100 days before you would like to move. For example 100 days before the end of your apartment lease. This give you plenty of time to correct any minor issues that may cause loan approval issues, and plenty of time to find a home without just settling because of time concerns.

Finally, understand there are two levels of pre-approval. The more common one is what is known as Loan Officer pre-approval. This is where only your Loan Officer has reviewed your application information, documents, and credit. Generally this is acceptable in the vast majority of cases, but can be problematic when new or inexperienced Loan Officers make mistakes in their assessment.

Certified Underwriter Pre-Approved from Mortgages Unlimited, Inc
Certified Underwriter Pre-Approved from Mortgages Unlimited, Inc

Mortgages Unlimited goes a step beyond, and also offers full Underwriter Pre-approvals, known as our Certified Pre-Approval. This means your application has been completely reviewed by an actual Underwriter, who has given their blessing on your credit, incomes, etc.  This only leaves us to have to finalize your application on the exact home when you find it (purchase agreement, appraisal, and title review).

Certified Pre-Approval  is significantly better than a basic pre-approval, and gives you a distinct upper hand when negotiating on your dream home – especially if you are in a multiple offer situation.

To become pre-approved for a home loan on properties in Minnesota, Wisconsin, or South Dakota, please fill out our secure online application, or call (651) 552-3681 to apply over the phone, or to schedule an in-office appointment.

Get pre-Approved for your home mortgage loan in Minnesota, Wisconsin, South Dakota
No Obligation to apply, and see what YOU qualify for.


Rehab Loans to Buy and Fix a home

Can you get rehab loans to buy and fix a home?  


There is no doubt that the current real estate market offers a lot of great bargains on short-sale, foreclosed, and homes in need of some tender loving care. However, many of these homes are in less than perfect condition. Many just have simple cosmetic issues, like ruined carpet, or in need of painting. Others need a new roof, or the previous owner vandalized the house, leaving them with missing cabinets, or missing appliances.

Standard mortgage loans don’t let you financing these homes, but our specialty renovation loan programs do.

These programs allow buyers to purchase a home and roll the cost of repairs or property improvements into the mortgage loan with as little as 3.50% down payment. The new loan is based on the value of the property after the repairs or improvements are completed.

We offer all three major renovations loans. Both the FHA 203k streamline rehab loan, the Full FHA 203k loan, and the HomeStyle Renovation conventional loan.

The programs are also available to refinance and fix up your existing home too.

See how this specialty loan program can help YOU find a home that may be outdated or need some minor improvements to make it the perfect home and get that home in a great neighborhood.

We lend in MN, WI, and SDContact us today at (651) 552-3681 to see if you can qualify for a REHAB PURCHASE AND FIX loan program, and move into the home of your dreams.

Learn more at https://JoeMetzler.com/203k

NOTE: This is NOT available for investors looking to fix and flip homes. That is a different program.


Ready to get started?

It’s easy. Simply complete the Online application.  You’ll be applying directly with me, Joe Metzler, an experienced, multiple award winning Loan officer with over 20-years in the the business. We lend in MN, WI, and SD. Learn more about me HERE.


Twin Cities real estate market hits 10-yr high

Minneapolis, MN: The Minneapolis, St Paul area real estate market reached a 10-year milestones in June 2015, with signed purchase agreements rising 19.2 percent to 6,266. Last year, closed sales had increased 22% to 6,928.

Real Estate, Minnesota, Minneapolis, for sale, mortgage rates, interest rates
Get Pre-Approved Today – Click HERE to Apply Online

This is all welcome news, because the last time demand was this strong was back in June 2005, according to a release Monday from the Minneapolis Area Association of Realtors.

The June 2015 median sales price climbed 4.7% to $229,900. This puts the AVERAGE home price to within just 3.5% of the record high set back in June 2006, which was at a then record median high of $238,000. Typical price per square foot, now at $128, is about 18.5 percent below its June 2006 record high.

The local real estate market continues to be a sellers market, because of the ongoing imbalance between the supply of homes for sale, and the number of active buyers looking to buy a home.

Sellers are getting on average about 99.6% of their last list price, with large numbers of homes selling within days, with multiple offers, and over list price.

For buyers, this means you need to be fully mortgage lender pre-approved, with pre-approval letter in hand, and ready to make an offer immediately on anything you love.

 MN first time home buyer programs

How Real Estate Agents Risk their License everyday

Don’t risk your Real Estate License

Many Real Estate Agents put their license at risk on a daily basis without knowing it.  Generally this is by stepping outside of their official duties, and stepping into areas they shouldn’t.

Title Company Risk

Did you know that most states have insurance solicitation laws that may apply when you refer a client to an in-house title firm (or one with which you have a Marketing Service Agreement)?

That means that you might need a title insurance license to make certain referrals. The safest thing a real estate agent can do is to discuss title, what it is, and let their clients decide who to use.images1923532412

This includes real estate agents automatically ordering title services from their preferred title company without talking to clients and getting their permission.

Mortgage Risk

Did you know that mortgage laws also prevent non-licensed mortgage originators from discussing loans, loan terms, programs and interest rates?  A Mortgage Loan Originator License must be obtained BEFORE doing any of the following residential property mortgage loan activities: soliciting, originating a loan application, offering, or negotiating any residential mortgage loans.

Can are real estate agent refer a client to a lender or Loan officer?  You bet, but they need to be very careful if they suggest loan programs, or talk about interest rates. A real estate agents best bet is to simply tell the client that they are not a lender, and they need to ask the Loan Officer all mortgage questions.

CFPB (Consumer Financial Protection Bureau)

“Solicit” means attempting to sell or asking or urging a person to apply for a particular kind of insurance or loan from a particular company, and no person shall sell, solicit, or negotiate any insurance or mortgage without a license.

Regulators at the CFPB are turning their heads towards Real Estate Agents, now that they have caused a lot of headache in the banking, mortgage, and credit card industries.  Just like giving legal advice,  it is generally best for real estate agents to simply avoid the potential trouble, and think before you act, even if your heart is in the right place by not giving advice and referrals.

Misconceptions sideline new home buyers

pic12345Lack of knowledge and misinformation may be discouraging Americans from buying a home according to a recent survey sponsored by Wells Fargo &Company.  The survey, conducted in June by Ipsos Public Affairs, found that many prospective homebuyers do not take the plunge because of uncertainty about their ability to qualify for a mortgage or about navigating the homebuying process.

The survey, “How America Views Homeownership,” found that many Americans say their financial houses are in order, but serious misconceptions keep them sitting on the side lines.

Read the full story here.


Tired of paying rent?

Tired of paying rent?  Want to finally own a home of your own?

Below is a chart of the most common reasons people continue to rent versus buying a house. Many of the most common reasons make sense, but the number one reason, a lack of a large down payment, is easy to get around.

From true no down payment loans (like VA loans, and USDA Rural Development Loans), to down payment assistance loans, we can often help most people become homeowners.

If you have OK credit, which means a middle credit score of 620 or higher, and at least $1,000 in the bank to spend on a home, you should call a first time home buyer program expect to discuss your options.

For homes in MN, WI, or SD, call (651) 552-3681, or visit a dedicated first time home buyer program web site for more information.


How to respond to Low ball Offers

When selling your home, there is a good chance you’ll get a low ball offer.

Before you blow a gasket with a an outright rejection, take a deep breath and understand why.

First, it almost without fail has noting to do with your home, its condition, or your asking price.  It simply has everything to do with buyers thinking it is still 2009. Thinking you are a desperate seller, that they can low ball offfer, and that you’ll accept the offer. Buyers believe it is always worth trying a low ball offer.  The reality is a real estate agent has priced your home correctly, and that almost all homes sell today within just a few thousand dollars (up or down) from the asking price.

house_from_wordRemember that receiving a written offer means that there is a buyer who is seriously interested in purchasing your home. By holding your emotions in check, and responding with a counter offer, you may well turn that low price offer into a sale.  You, with help of your real estate agent, just need to move forward with a bit of strategic negotiation.

Your goal is to sell the house, and sell it at your asking price. Their goal is to buy your home at the lowest possible price.  Put your emotions away. It is a business transaction.  By simply keeping negotiation alive with a counter-offer you’ll almost always sell the house at a number comfortable for both buyer and seller.

Every situation is different, but, in most cases, the best negotiation strategy is to determine a price and terms that you are willingly to accept and respond accordingly. This may mean lowering your price and removing any seller concessions (such as paying closing costs) or it may mean sticking to your asking price, but giving in on a few of the buyer’s requests (such as leaving behind the appliances).

As a MN and WI based Mortgage Loan officer, I see that many of my buyers NEED the seller to pay closing costs. This term is very misleading, and many sellers are annoyed at paying the buyers closing costs. But remember, you are NOT really paying their closing costs. It is simply a way for the buyer to roll the costs into the loan. FOCUS on your bottom line, and don’t be concerned about paying the buyers closing costs.

2013 Home Value Gains Best in 8-yrs

2013 Home Value Growth Best in 8-years

First Time Home Buyer programs MinneapolisA little real estate history lesson… In most areas, home prices peaked around 2006, started crashing in 2007, bottomed out in 2009,  held steady through 2011, and have grown since 2012.  The recently finished year of 2013 saw annual home value gains the highest since 2005, according to a newly released report.

CoreLogic’s Home Price Index indicated sales were up 11% year over year in December. This also meant it was the 22nd consecutive month of year over year price gains nationally.

Rising home prices should allow more people to sell their home without being underwater, which should allow a lot of pent up supply, and continue to increase home values for even more recovery in 2014.  After a wild ride, it appears we are finally on a well defined housing recovery.

Home prices are expected to continue their year-over-year climb in January, with a projected 10.2% increase from January 2013.

If you’ve been thinking of selling your home.

Now would be a great time to connect with a local real estate agent to see what you home might sell for.

If you are thinking of buying a home

Now would be a great time to buy before home prices rise any further, and while mortgage interest rates are still historically low.

MN down payment assistance programs

Down Payment Assistance programs for first time home buyers in Minnesota.

Apply for Down Payment Assistance in Minneapolis, St Paul, MNWe have several programs in Minnesota with varying levels of down payment assistance. Up to $10,000 is available in assistance for those who qualify.  Most people get much less, usually between $3,000 to $5,000. All programs have different qualifications and quidelines. Please visit our special down payment assistance website to get more information from a licensed Minnesota Loan Officer and down payment assistance specialist.

First Time Home buyers can take advantage of down payment assistance and grants available in Minnesota.  First time home buyers typically qualify if they have not owned a property in the last 3 years. If you have owned a property in the last 3 years, you can still qualify for some down payment assistance programs.

Here are some down payment assistance examples:

  • Below market interest rate with up to 5% (or $5000) down payment assistance loan.
  • Below market interest rate with up to 3% (or $3000) down payment assistance. No payments. Pay back when you sell.
  • 100% financing in qualified rural areas of MN and WI
  • 100% financing for active or military veterans
  • Up to $10,000 in assistance – part of which may be forgiven after a few years.
  • Mortgage Credit Certificates – Used to reduce your tax liability up to $2,000 a year

While having your own money is always best when buying a home, if you have some, but need a little assistance, these first time home buyer programs are just the right tool to make your real estate dream come true.


Selling your home in the winter – Myth or Fact?

tree_snowI hear it all the time.  Homes don’t sell in the winter.  Sounds legitimate, but the facts simply do not bear this statement out to be truthful.

Are there less homes on the market in the winter?  Yes.  Statistics show about a 30% drop in active home buyers versus the peek summer months.

Big deal…

Realize this… There are fewer homes on the market for sale, so when the more serious buyer comes out in the wintertime to buy a home,  YOUR HOME gets more showings because you have LESS COMPETITION!

Good homes priced right sell quickly all year round.

Mortgage Underwriting Red Flags – Things to avoid

Getting a mortgage loan?  Does it feel like the underwriting process is over zealous?  It is… but the reasons why are justified.  During the real estate boom from around 1999 to 2007, fraud was rampant.   A big reason for the fraud was that the lending industry was a bit too trusting.  So today, when the industry verifies everything, it feels a bit intrusive.

I simply ask this:  If you were to give a stranger hundreds of thousands of dollars, what would you ask for to be comfortable?Mortgage Fraud

These days every Mortgage Application is examined very carefully for any sign of possible fraudulent activity.  There are several high areas of possible fraud activities that Underwriters look for in all loan applications:

  • Mortgage Application fraud
  • Occupancy fraud (really a rental)
  • Credit Reports
  • Employment Fraud
  • Down payment money fraud
  • Income documentation fraud
  • Appraisal fraud
  • HUD-1 (Settlement Statement shows suspicious items)

Underwrites also look very closely at  the Purchase Agreement.  We deal with numerous issues on the contract that Realtors may just be sloppy, or are trying to hide something. Being aware of what these Red Flags may be can help to avoid underwriting nightmares.

  • Any item that has been whited out.
  • Numbers appear to be squeezed together due to alterations.
  • Different handwriting and signatures for the same individual.
  • Earnest Money Deposit equals the whole Down payment or is an odd amount.
  • Earnest money check not from the actual buyer
  • Non Arms-Length transaction.  For example the Seller is a Real Estate Agent, Broker, Relative, Employer, etc.
  • Seller is not presently listed on Title.
  • Seller has only owned the home for a short period
  • Multiple buyers on contract but only one applying for mortgage
  • Buyer has been added to, or deleted from the Sales Contract
  • Power of Attorney transactions.
  • Personal items on contract (boats, lawn equipment), then “removed”
  • Earnest Money Checks have inconsistent dates.  For example Check #101 is dated 11/12, but Check #103 is dated 10/28.
  • Contract is filled in, in very few areas with several areas left blank which is not typical of a normal Sales Contract.

The above list is not all inclusive, but it gives a good idea of how closely Underwriters Look For Red Flags During The Loan Approval Process.  The more aware Realtors are of what Red Flags Underwriters are looking for in a Sales Contracts, the more questions they can help eliminate, and reduce issues and closing delays.

Buying a new home? Are you really Pre-Approved?

Seems like every week I get a new client, who has been working with another lender, and suddenly, their mortgage application was denied very close to closing.  A common statement they make is, how can that be, I was Pre-Approved?”


The answer is yes and no.  Under the standard procedure most lenders follow is that the loan officer takes an application.  Next the loan officer should pull credit. This should give the lender a good preview of the potential final outcome.  Many lenders will give a pre-approval letter at this point, but they really should not.


If the application looks good, the lender should now collect and verify your supporting documents.  This includes W2’s, tax returns, pay stubs, bank statements, and other needed documents depending on your situation, like divorce and bankruptcy papers.

Upon a successful review of the application and supporting documents, your Loan Officer should be able to provide a valid Pre-Approval letter.


Your Pre-Approval is not a guarantee.  But at this stage, a properly reviewed application from an experienced Loan Officer is as close as you can get to knowing your application will be approved.  There are many more steps between this stage and closing. Unfortunately, this is where a lot of loan applications run into trouble.  Poorly trained, unlicensed, and inexperienced Loan Officers miss many important items at this stage.  The list of items they miss is too long to list here. Understand that 80% of loan officers are NOT LICENSED.


Your application will now go through a processor.  That person will usually order the appraisal, title work from a title company, an IRS copy of your tax transcripts, and generally scrub the file to make sure the minimum items needed are in the file.  Once everything is back, the full file goes to underwriting for review.  Assuming everything was entered and done correctly up to this point, the vast majority of loans are fully approved and cleared to close.


Surprises that show up at this stage included incorrectly calculated income, unqualified income,  appraisal issues, inappropriate funds to close, and surprises on your tax transcripts, like small self-employed side jobs, or large un-reimbursed employee expenses. At this point, we even run into people who during the application process have lost their jobs!


As you can see, there are a few items that can truly pop up to kill an application that are not discovered until during the underwriting process. BUT THE VAST MAJORITY are not surprises.  Most were there to be discovered at application.

10% of the success of your mortgage application is the company you chose.  90% of the success is the Loan Officer you chose.  Chose wisely!


As rates rise, should Real Estate agents worry?

Minneapolis, MN:  Yesterday the Federal Reserve “clarified” to everyone when it will likely end its economic stimulus program.  This ended weeks of speculation that has caused mortgage rates to surge to the highest levels since 2011, and up over 1/2% in physical rate in the past two months.

house_new_constructionBased on the news, it appears mortgage rates have a new bottom, which is about where they are at today. There is plenty of room for rates to move higher.  Express this to your clients, and get the fence sitters moving.

Loan Officers and Real Estate Agents have great fear for future purchase activity.  Is it founded?  “There should be some concern, but overall, I only expect a minor slowdown in purchase activity. People always buy homes, regardless of rate.” said Eric Metzler, a Senior Loan Officer with Mortgages Unlimited in St Paul, MN.

Will home sales fall as rates rise?  Sure… But most people will still buy, just maybe a little less home. As for the future?? If you are a full time experienced agent with a good past client based, I wouldn’t worry about it.

Desperate Loan Officers

Today, a huge number of Loan Officers have been living largely on refinance activity.  This business will drop dramatically as rates creep up.  Many of these Loan Officers have little, if any, purchase business experience.  We would expect to start seeing layoff’s from many of the larger banks, and online refinance powerhouses.  We should also start seeing Loan Officers back again hitting the streets, trying to drum up Realtor referral business.

My world of advice is to pass on refinance specialists trying to turn into purchase loan hopefuls.  While basic loan requirements are similar, purchase loans have a whole new world of requirements for these Loan officers, and you don’t want them experimenting on you and your clients. Stick with licensed, and experience purchase loan specialists like myself.


Buying a HUD foreclosure with FHA financing

Minneapolis, MN:  The Minnesota and Wisconsin housing market for homes under $250,000 is hot…   Good homes priced well are selling very quickly, and usually above the original asking price.

I’ve run into this situation many time recently when buying a HUD home, so I thought I would address it here.


hh_fsThe quick answer is YES if using an FHA loan to buy the house.  NO if using any other financing.

If you are buying a HUD foreclosure, they almost always already have a HUD Appraisal.  This is good and bad.  On the good side, if the buyer is using an FHA loan, the buyer does not need to pay for one of their own.  They get to use the HUD appraisal.

If the buyer is using any other type of financing, the existing HUD appraisal is meaningless.  You will need a new one.


But if the house goes into multiple offers, the buyers using FHA financing are hamstrung by the HUD Appraisal. Sure, they can offer more than the HUD appraisal, but any amount they offer above the asking appraisal amount will be additional cash out of their pocket above the standard FHA down payment of 3.5%.

For example, a HUD Home is on the market for $100,000 with an existing HUD appraisal at $100,000.  There are multiple offers.  You want the house.  You offer $105,000. Therefore your down payment is $8,675 (3.5% of $105,000 PLUS the $5,000 above the appraisal price).


What clients and Real Estate Agents Don’t Understand about Appraiser Independence

What clients and Real Estate Agents Don’t Understand About Appraiser Independence

Minneapolis, MN:  Real Estate Agents constantly call our mortgage office to ask if an Appraisal was ordered, or if it is completed yet.

appThe first question is pretty silly…  Of course it was.  The second question is tougher to answer until the completed appraisal physically shows up on the lenders desk.

Recent lender rules require what is known as “Appraiser Independence”.  This is a double down on the old rules that no one is allowed to influence or pressure the appraiser to obtain any pre-determined value on the home. The rules also means that no one who will be compensated on the file can have anything to do with picking the appraiser.  It has to be totally blind and randomly assigned.  This is very different from years past where the client or the Loan Officer could pick any appraiser they wanted.

Once the appraisal has been ordered, there are varying degrees of what the Loan Officer may or may not know about the status of the appraisal.  Most mortgage companies use a middle company, known as an AMC, or Appraisal Management Company, to handle all aspects of the appraisal. This easily means the lender will meet the “independence” guidelines. Some AMC’s are better than others in letting the lender know the status, giving them the expected date the appraiser will visit the property, and the expected appraisal completion date. With many others, the lender is completely in the blind. In the vast majority of cases, I don’t even know who the appraiser is until the appraisal is completed.

To further complicate the issue, while it is technically possible for a Loan Officer to speak to an appraiser on a very limited number of questions, the vast majority of lenders completely forbid this contact to avoid even the remote likelihood of influence complicity.  It is much easier to respond to regulators that “our loan officers are forbidden”, then to claim they didn’t do anything wrong.

As a mortgage lender, it is very frustrating when real estate agents constantly bombard me with appraisal question.  If I know, I will tell you.  Do not yell at the Loan Officer if they don’t know the answer or say they can not talk to the appraiser.