This is a mortgage blog.

Its purpose is to educate consumers and real estate professionals about home mortgages.

June 13, 2014

What is mortgage insurance and why do I have to pay it?

Let's start with the basics - what is mortgage insurance?


What is Mortgage Insurance?Many homeowners feel mortgage insurance is imposed on them by banks for no reason and they don't benefit from it in any way. The reality is that without mortgage insurance, many of those same people would not be homeowners.

I feel it is important to note that this post is not about homeowner's insurance, which is required on all mortgaged properties and protects the home and its contents against loss.

Mortgage insurance covers a lender in the event of a foreclosure. Most homes that go into foreclosure sell for less than market value, so if a homeowner doesn't have much stake in a home, the lender is the one who actually loses money. This is where mortgage insurance comes into play. On purchases with less than 20% down payment or refinances with less than 20% equity in the home, a homeowner obtains a mortgage insurance policy to cover the lender in the event of a foreclosure.

Without mortgage insurance, one of two things would happen:

  1. Lenders would stop lending money to people with less than 20% down payment or equity
  2. Lenders would raise interest rates to make up for the losses they will undoubtedly incur on foreclosed properties. 
Some people debate that mortgage insurance shouldn't exist and all homeowners should be required to put at least 20% down on a home purchase, but the vast majority of people I have encountered disagree.


Types of mortgage insurance:



PMI vs. MIP


These two terms are often used interchangeably, but they are not the same. PMI stands for private mortgage insurance. This means that the borrower pays a private company to insure the lender against loss. MIP stands for mortgage insurance premium and is specific to FHA loans. MIP is required on all FHA loans and is paid to the Federal Housing Administration (FHA), which insures lenders directly against loss on these types of loans.


Monthly Mortgage Insurance


As the name implies, monthly mortgage insurance is a premium that is paid each month as part of the mortgage payment. It is the most common form of mortgage insurance.

To calculate monthly mortgage insurance, the annual insurance premium is multiplied by the loan amount and divided by 12. Example: If the mortgage insurance on a $200,000 loan is 0.50%, the annual premium is $1,000 (200,000 x 0.5%). If the annual premium is $1,000, the monthly premium would be $83.33 ($1,000/12). This $83.33 is the amount added to the normal mortgage payment each month.

Monthly mortgage insurance may be cancelled at a certain point, which I will cover near the end of this post.


Single Premium Mortgage Insurance


Single premium mortgage insurance is a pretty basic concept. A homeowner pays a lump sum at the time of closing rather than paying a monthly premium. The idea is that if enough homeowners pay this lump sum, that pool of money will offset the small percentage that will result in losses from foreclosure. The disadvantage of the single premium mortgage insurance method is that if you do not keep the loan or home for a long period of time, you paid a large amount upfront when you could have made small payments each month for a short period of time.


Lender Paid Mortgage Insurance (LPMI)


This type of mortgage insurance sounds attractive - after all, the lender is paying right? The actuality is that loans with lender paid mortgage insurance have higher interest rates. The extra interest paid each month is effectively the mortgage insurance premium. So the lender is not actually paying the premium, the homeowner is - in the form of higher interest charges. One major disadvantage of LPMI is that it cannot be canceled since it is built into the interest rate.


FHA Mortgages and MIP


As I mentioned above, FHA insures loans against default with MIP. MIP has two types and they are both required on all FHA loans. The two types of MIP are upfront and monthly.

Upfront MIP (UFMIP) is essentially a form of single premium mortgage insurance. UFMIP is currently 1.75% of the loan amount. FHA allows the UFMIP to be financed, which means a homeowner can add it to the loan amount rather than paying the premium out of pocket at the closing. UFMIP is required on all FHA loans regardless of credit score, down payment, loan term or any other factor.

Monthly MIP is the FHA version of the monthly mortgage insurance section. The monthly MIP amount is dependent on the loan term and down payment and is currently significantly higher than PMI options, which is one of the disadvantages of FHA loans. Canceling monthly MIP has become increasingly difficult recently, which is discussed later on.


Conventional Loans - Conforming & Jumbo


Conventional loans with less than 20% down payment require come sort of PMI, be it monthly, single premium or lender paid. The most popular choice for homeowners is monthly PMI because it doesn't require a lump sum and it can be cancelled after a certain amount of time (see below).


USDA Loans


USDA loans have a form of upfront mortgage insurance called a Guarantee Fee. Currently, this fee is 2% of the amount financed on all purchase and refinance loans and can be added to the loan as discussed in the FHA section. USDA loans also have monthly PMI, which is set at an annual rate of 0.40% right now.


VA Loans


VA loans have a form of upfront mortgage insurance known as a Funding Fee. The Funding Fee on VA loans varies depending on how many times a veteran has used their VA eligibility, the down payment and the type of veteran (regular military, reserves or disabled). Disabled veterans and surviving spouses of veterans who died in service or due to service related injuries are exempt from the Funding Fee. VA loans do not have monthly mortgage insurance, even with 0% down, which is one of the major benefits of the VA loan program.


When can I stop paying mortgage insurance?


This is a separate and somewhat complex issue depending on the loan type and other factors. I have written a separate article here addressing this topic: How do I cancel my mortgage insurance (PMI, MIP)?

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Arizona Mortgages

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June 12, 2014

How do I cancel my mortgage insurance (PMI/MIP)?

Mortgage insurance allows some people to purchase or refinance a home with less than 20% down payment or equity. While it provides a service and helps more homeowners into homes, mortgage insurance is an added cost that should be canceled as soon as possible. First I'll discuss the two main categories of mortgage insurance and then how to cancel each.

Canceling Mortgage Insurance

PMI vs. MIP


PMI stands for private mortgage insurance and may be attached to conforming, jumbo or USDA home loans. MIP stands for mortgage insurance premium and is required on all FHA loans.


Canceling PMI


The cancellation of PMI was addressed by the Homeowner's Protection Act (HPA) in 1998. Effective after July 29, 1999, certain rules apply to the cancellation of PMI. You can read the HPA documents here.

The first rule set forth by the HPA was that PMI is automatically canceled when a homeowner reaches 22% equity in the property. Another way of saying this is that it is automatically canceled at 78% loan-to-value. The 78% figure is based on the original purchase price and amortization schedule and the homeowner must be current on the mortgage in order for automatic cancellation to apply.

The second rule set forth by HPA is that a homeowner can request that PMI be removed at 80% loan-to-value (same as 20% equity). In order to have the PMI removed by request, the following conditions must be met:

  1. The borrower must submit a written cancellation request
  2. The borrower has a good payment history
  3. The borrower is current on payments at the time of request
  4. There are no second liens on the property
  5. The borrower provides proof that the value has not declined

Can I get an appraisal to remove PMI?


Maybe. If you believe your home has increased in value to the point where you have 20% equity, you can have it appraised and submit a request to have the PMI removed. There are a couple of drawbacks or risks with this plan. The first is that you need to pay for an appraisal without knowing whether or not your home will actually appraise for the value you are hoping for. The second is that the lender may not accept the value presented on the appraisal if they don't agree with the appraiser's methodology or selected comparable sales (read how appraisal values are determined here). This route may be worth it if you believe your home has plenty of value and you are paying quite a bit in monthly PMI. Some risk and $400 for an appraisal may be worth possibly removing $100 a month in PMI. Just be sure you've done your research before you attempt this. 


Canceling MIP


Removing MIP from FHA loans is a completely different process than PMI. The HPA laws are written for PMI, so they don't apply to MIP. June 3, 2013 is an important date with regard to MIP and when it can be canceled. Here are the terms for MIP before and after that date:

If a loan was taken out prior to June 3, 2013, these are the MIP cancellation rules:
  • If the loan term is more than 15 years, the MIP automatically cancels at 78% loan-to-value so long as the borrower has made at least 60 payments.
  • If the loan term is 15 years or less, the MIP automatically cancels at 78% loan-to-value.

If a loan was taken out after June 3, 2013, these are the MIP cancellation rules:
  • FHA loans with an initial loan-to-value greater than 90% require MIP for the life of the loan.
  • FHA loans with an initial loan-to-value of 90% or lower require MIP for 11 years, after which it can be canceled if the loan-to-value is 78% or less.

This means that if you have recently taken out an FHA loan or you plan to, you cannot cancel MIP if you put less than 10% down. Even if you put 10% or more down, you are required to pay MIP for at least 11 years. This is one of the reasons conforming loans remain a more popular option than FHA loans for borrowers who can put at least 5% down (find minimum down payment requirements for all loan programs here).


Can I get an appraisal to remove FHA's MIP?


Since many FHA loans have minimum mortgage insurance time periods, even if you get an appraisal with a high value, it may not remove the MIP. If you have a recent FHA loan and you put less than 10% down, nothing can remove the MIP with the exception of refinancing, which brings us to the last topic on mortgage insurance. 


Refinancing to remove mortgage insurance, PMI or MIP


The other method for removing mortgage insurance is to refinance into a loan without it. If the property has enough value and your current interest rate is higher than the rates available today, why not refinance to lower your rate and remove the mortgage insurance in one transaction? If your current loan is FHA and you have some equity, it may still make sense to refinance even if your rate is similar to those being offered on a conforming loan now. The monthly savings on mortgage insurance alone may be worth it. 

Of course, if you are located in Arizona, I'd be happy to discuss any of these options with you, just give me a call or contact me here.

I hope that helps clear up some of the confusion surrounding mortgage insurance, MIP and PMI. Thanks for reading my blog!

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May 23, 2014

How much do I need to put down on a house?


Mortgage Down Payment
Down payment options for purchasing a new home vary by loan program. Here's an overview of the most popular mortgage types and their minimum down payment qualifications. I've also included information on the mortgage insurance that is or isn't involved in each program because I believe down payment shouldn't be the only factor when making a mortgage decision.


Conforming Mortgages


Conforming loans are the most popular loans and are often mistakenly referred to as conventional loans (another post for another time). These loans conform to the guidelines of Fannie Mae and Freddie Mac - two mortgage giants. By following conforming mortgage guidelines, lenders are able to sell their loans on the secondary market, which is advantageous to the lender. Read this article to understand why a lender's ability to sell mortgages benefits everyone: Why are home mortgages sold?

Among the most important guidelines Fannie Mae and Freddie Mac set is the minimum 5% down payment. As recently as last year, conforming options included 3% down payment loans, but in November 2013 these mortgages were eliminated.

Conforming loans with less than 20% down payment require private mortgage insurance (PMI). PMI is a monthly payment that protects the lender in the event of a default and is automatically canceled when the homeowner has 22% equity in the home.

The Down Payment Sweet Spot


Conforming loans have a major benefit for people who are able to come up with a larger down payment. At 20% down payment, no mortgage insurance is required on conforming loans. Most people who are able to put down 20% or more on a home purchase choose conforming loans for this reason.


FHA Mortgages


FHA loans are insured by the government and require just 3.5% down payment. This is one of the reasons they remain a popular mortgage option for first time home buyers. This lower down payment requirement is not without its downside, however.

Mortgage Insurance Premium (MIP)


FHA loans require two different types of mortgage insurance premium (MIP). The first type is called upfront mortgage insurance premium (UFMIP) and is required on all FHA loans. The current UFMIP fee is 1.75% of the loan amount. UFMIP is typically financed, meaning it is added on to the loan amount rather than paid by the borrower at the time of purchase.

The second type is called monthly mortgage insurance premium. Monthly MIP amounts vary depending on the down payment and loan term. Currently, FHA's monthly MIP payments are significantly higher than conforming PMI payments. Monthly MIP is required for the life of the loan if the down payment is less than 10% or for a minimum of 11 years if the down payment is more than 10%.


VA Mortgages


VA loans exist to help veterans, service members and surviving spouses obtain favorable mortgage terms. They are partially guaranteed by the government, which allows lenders to offer them with 0% down payment. This makes them a very attractive option for those who qualify. VA loans do not have any monthly PMI or MIP, which is another huge benefit.

VA Funding Fee


VA mortgages do have an upfront fee, somewhat similar to FHA's UFMIP. It is called a funding fee and just like UFMIP, it may be financed rather than paid at the time of closing. The funding fee for a home purchase currently ranges from 1.25-3.30% depending on down payment and whether or not the borrower has used VA benefits in the past. It is important to note that qualifying disabled veterans and surviving spouses are exempt from any funding fees.


Jumbo Mortgages


Jumbo mortgages will vary greatly from lender to lender. A jumbo mortgage is one that has a higher loan amount than the conforming limits will allow. Since they do not follow conforming, FHA or VA guidelines, lenders make their own rules when it comes to jumbo loans. The lowest down payment option I have seen for a jumbo mortgage is 10% down payment. My company currently offers this option for those of you reading this in Arizona.

Many lenders fall into the 20% minimum down payment category when it comes to jumbo mortgages. The amount you are borrowing can also affect the amount of down payment required. The higher the loan amount, the higher the probability is that a larger down payment is required. It is best to consult a mortgage professional or two directly if you are in the jumbo market because rules and options can vary so greatly.


USDA Mortgages


The USDA loan program was developed to help people in rural areas purchase homes at more favorable terms. USDA stands for United States Department of Agriculture (yes, that USDA). The loans have strict limits on household income and the property must be located in an eligible rural area. If both borrower and property meet eligibility requirements, USDA loans offer 0% down payment. They do have an upfront fee called a guarantee fee, which may be financed if the homeowner wishes. They also have monthly mortgage insurance, but the payments are significantly lower than FHA and somewhat lower than conforming mortgage insurance payments.


One Final Note - Down Payment Assistance Programs


They aren't necessarily separate programs, but it is important to know that most areas of the country have down payment assistance programs.

For example, I reside in Maricopa County, Arizona and we have a program called Home in 5 that provides 5% down payment assistance to qualified borrowers. This program can be combined with FHA or VA loans to provide even lower down payment options.

Down payment assistance programs come in too many varieties to cover here. Some require repayment, others do not. Some are actually a second lien on the property, others are simply a grant. Some have payments and interest, others have neither. These programs vary greatly by region, so it's best to do some online research on the topic or, better yet, call a local professional. They can walk you through the ins and outs of options available in your area.

I hope that provides a little clarity on the subject of down payments. As always, thanks for reading my blog!

My website: Mortgage Programs in Arizona

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May 7, 2014

How do biweekly mortgage payments work?

What are biweekly payments and why do people choose them?

Bi-weekly mortgage payments
Biweekly payments are half mortgage payments made every two weeks. They are a subtle way of paying down principal without paying large lump sums of money at a time. For most people, paying half a mortgage payment every two weeks doesn't feel any different than making one payment each month, especially those people who are also paid biweekly.



Here's why they are not the same:


There are 52 weeks in a year, so paying every 2 weeks is 26 half payments. 26 half payments are equal to 13 full payments annually instead of 12 monthly payments.   


How much of a difference do biweekly payments actually make?  


Quite a bit.  Let's take an example of a 30 year fixed mortgage for $150,000 at 6%. Paid off as agreed, a homeowner would make 360 payments of about $900 a month. The total of those payments over the life of the loan is about $324,000. The same loan with biweekly payments would be $450 every two weeks. This would be 638 half payments (26 per year) and the loan would pay off in about 24.5 years. The total amount paid over the life of the loan with biweekly payments is about $287,000. In this example, the interest savings over the life of the loan would be $37,000 and it was paid off 5.5 years early. 

Here's a chart showing the principal balance for this example in 1 year increments (click for a larger version):


Example of biweekly payment benefits


**Important note: This is a simple example for a homeowner who does not escrow their taxes and insurance. Biweekly payments with escrows actually pay off even faster because you are making 13 escrow payments as well and the overage goes to principal.


Are there any drawbacks?


Maybe. Some banks will charge a fee for this payment arrangement, either upfront or as you go. Setup fees can range from $250-500 upfront and $4-9 per payment if you pay as you go (not recommended). Some banks do not charge for biweekly payments. In the grand scheme of things, if you stay in your home long term and keep paying biweekly, the setup fee is a drop in the bucket. However, if you only plan to be in your home for a short time, the setup fee may represent a significant portion of the savings you hoped to realize.


How do I set up biweekly payments?


Biweekly payments are offered by most lenders and banks. You may be able to set up a biweekly payment system with your current bank without having to refinance. One word of caution, make sure you can afford biweekly payments and that you realize you are paying extra each year. Many people are paid every two weeks, so if you can afford it, it's an easy way to cut down the interest you pay over the life of your mortgage without changing your budget drastically.
Thanks for reading my blog!

Mortgages in Arizona

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May 6, 2014

What is a good debt-to-income (DTI) ratio for a home mortgage?


I'll answer that question at the end of this post. I think it is important to cover the basics first.


What is a debt-to-income ratio?

Debt-to-income ratio
Debt-to-income ratio (DTI) is just another way of saying money out vs. money in each month. Lenders use it in order to determine whether they believe a borrower will be able to reasonably repay a loan.


Which debts are included?


The debt portion of a DTI ratio is calculated by adding the amount of monthly payments on all recurring debts. These debts are almost always included:

  • Car payments
  • Minimum credit card payments
  • Expenses for the home being purchased or refinanced
  • Expenses for other real estate owned
  • Student loans*
  • Child Support
  • Alimony/spousal support
  • Other installment loans (boat, RV, recreational vehicles, lines of credit, etc.)

For the most part, if a debt shows up on your credit report, it is included. Utilities are not included in debt-to-income ratios, so phone, electric, water, gas, and other utilities are usually not considered.  


It is worth noting that all costs of real estate owned are part of the DTI ratio. This means that property taxes, homeowner's insurance, mortgage insurance and homeowner's association dues are all included for each property owned (if they are applicable). 

*Student loans may be omitted from the DTI ratio in certain instances with proof that they will be deferred for at least 12 months past the closing date of the proposed mortgage. 


How is income calculated?


The income portion of the DTI ratio is calculated for mortgages by using gross income (pre-tax). Almost any type of income can be used as long as it has a documentable history and the reasonable expectation that it will continue for at least 3 more years. For employment income, most programs and lenders will want to see a 2 year history of income, but special situations and types of income may be considered with less than 2 year history. These are some typical income sources used in the debt-to-income ratio:

  • W2 salaried or hourly income
  • Bonus income
  • Commission income
  • Business income 
  • Social Security income
  • Pension income
  • Rental income
  • Child support income
  • Alimony/Spousal support income 

The calculation for some of these types of income varies by program and lender and could be an article topic of its own. Salaried, social security, pension, child support and alimony income are all pretty straightforward - simply divide the annual amount by 12. To determine exactly how the other income sources are used in the DTI ratio, consult a reputable lender and let them do the work for you. 

So...what is a good debt-to-income ratio?


Different loan types (i.e. FHA, conforming, VA, USDA, jumbo) have different acceptable ratios. A very general rule of thumb is 43%, but this is not set in stone. If your DTI ratio is 43% or lower, you should qualify for nearly every program available. It is possible to qualify for programs above 43%, even after the recent changes in the mortgage industry. Certain loan programs allow higher debt-to-income ratios if the loan receives an automated loan approval or a lender may have its own separate program beyond the standard loan types mentioned. 

To find out which programs you would qualify for, simply pick up the phone and call a local lender. If you are located in Arizona, I'd love to be that lender. 


A quick example debt-to-income ratio calculation:


Here is a very simple debt-to-income ratio calculation. Susan has a salaried income of $5,000 per month. She has a car payment of $500 per month and her credit card minimum payments add up to $100 per month. The home she is hoping to purchase has a proposed monthly payment of $1,300. These are her only monthly debt and income sources.

  • Susan's monthly income is $5,000
  • Susan's monthly debts are $500 + $100 + $1,300 = $1,900
  • Susan's debt-to-income ratio is 38% ($1,900 / $5,000 = .38)
  • Susan should qualify for any loan program with her DTI at 38%

I hope that helps clear up some of the confusion surrounding debt-to-income ratios and how they are used to qualify or disqualify prospective borrowers. Please feel free to reach out to me with any questions or if you are here in Arizona and would like help calculating your DTI ratio. 

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April 29, 2014

Why is a mortgage payoff higher than the current principal balance?

The concept of payment in arrears.

Mortgage payoff balance
Many people look at their mortgage statement and assume that the current balance is how much it would take to pay off the loan. The truth is that the interest on a mortgage is paid in arrears, so the balance is always lower than the payoff figure. Payment in arrears means that each month's payment is actually paying the interest for the previous month (example: interest for January is actually paid with the mortgage payment on February 1). Think of it like the electric bill - it is paid after the service is used.

The idea of payment in arrears means that whenever a mortgage is paid off, the amount owed is more than the current balance. A certain amount of interest is added for the time that has passed between the last mortgage payment and the date the loan is paid off. This amount will vary depending on the interest rate of the loan being paid off, the amount owed and the day of the month the loan is paid off. A good conservative estimate for the interest amount is about 75% of the current monthly payment.  Add that to the current principal balance of the loan and you have a ballpark figure for a total payoff amount. 

**Important note: FHA mortgages traditionally charged a full month of interest upon payoff regardless of what day of the month the loan was paid off. This policy is changing soon and FHA will no longer be able to charge a full month's interest after January 21, 2015. Read more about this here.**


The myth of skipped mortgage payments.


When a person purchases or refinances a home with a new mortgage, they typically pay prepaid interest (sometimes referred to as interest per diem). Prepaid interest is a prorated amount of interest calculated by using the number of days remaining in that month and the interest rate. Prepaid interest is like a partial mortgage payment paid ahead of time and results in the 1st of the month passing one time without a mortgage payment. Many people refer to this as "skipping" a payment, but the reality is that the interest was already covered in the form of prepaid interest at the settlement


Not all borrowers skip their next payment.


There are a small percentage of loans that will not skip a monthly payment because they close right at the beginning of the month. These loans receive an interest credit at the closing rather than paying prepaid interest. When an interest credit is issued, the next mortgage payment will be due on the 1st of the following month. The closing paperwork on your loan should clearly define if this is the case or if you will be "skipping" a payment as most loans do. If you are unable to determine which scenario you fall into, just check your paperwork for the first payment letter or call your lender for clarification. 

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Website: Mortgage Rates in Arizona

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April 22, 2014

How are appraisal values determined on a home?

What really affects value when it comes to a home appraisal?


Appraisal home valuesI hear the following statement a few times a day, "My neighbor's house is listed for X and mine is bigger, so my house must be worth Y." Replace X and Y with values that make sense in your neighborhood and you've probably heard it too. For this reason, I am going to go over the basics of how a residential appraiser calculates home value. 

*This is not how commercial properties are valued, but that's another subject for another blog.


Recent comparable sales are everything. 


Residential appraisals are based on the three most comparable recent sales ("comps"). More than 3 comps may be used, but typically the three most comparable are given the majority of the weight. A common mistake homeowners make is comparing their home with another that is listed for sale pending sale, but not actually sold. Just because someone lists a home for $1,000,000, doesn't mean that it's worth that much or that someone would pay that amount for it. Pending sales and listed homes may be added to an appraisal report for a little extra support, but they cannot be used as a true comp unless they are closed and ownership has changed hands.


Appraisers usually try to stay within 1 mile for distance and 6 months for age, but this is not always possible. When it isn't possible, the best available comps are used. In large metropolitan areas, it isn't very difficult to meet these standards, but in rural or sparsely populated areas, exceptions must be made.

The best available comps.


Another common mistake people will make in estimating their own home's value is ignoring comps that are lower (whether consciously or subconsciously). An appraiser can't simply ignore comparable sales if they don't support the purchase price or estimated value for a refinance. They have to take into account any home that is similar to the subject property and use the best available. Its easy to search through recent sales and pick and choose a home here or there that would support a home's higher value, but the lenders who approve loans have access to the same recent sales information as everyone else. If the best comps are ignored, the lender will choose not to use the appraisal or cut the value, making it all but useless. Appraisers who do this repeatedly will get themselves blacklisted from lenders and will probably be out of business shortly thereafter.


Making adjustments for the differences.


Now we know what appraisers generally use to determine value, how do they come up with the exact figure? An appraiser will line up the subject property and the three or four closest comparable sales and then make adjustments for positive and negative attributes. For instance, if the subject property has more square footage than one of the comps, that property will be adjusted downward.  Other attributes that may cause increases and decreases in the home comparisons are # of bedrooms, # of bathrooms, lot location, home age, build quality, views, lot size, garage size, upgrades, swimming pools, guest houses, fireplaces and on and on. Many of these items are quantifiable such as number of bedrooms and bathrooms. Others are more subjective like views and lot location. After putting all of these variables together for each comparable property versus the subject property, the appraiser comes up with adjusted values for the comps based on the sales price plus or minus the adjustments. It is then just a matter of looking at the adjusted values and coming up with a final value estimation for the subject property.



Preparing the report.


The amount of time spent actually inspecting the property is only a fraction of the overall time required to complete an appraisal report. An appraiser will usually research a property before visiting the site to get a feel for recent sales and the local market. The appraiser will then visit the property to inspect it and take pictures and measurements. After this inspection, the information gathered about the comps is revisited with a better understanding of the subject property and the actual appraisal report is prepared and delivered. 


I hope this gives you a better understanding of the appraisal process.


Thanks for reading my blog!

Website: Mortgages in Arizona

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April 17, 2014

What documents are required to get a mortgage?


What documents will I need to provide to get a home loan?

Some loans will require more or less documentation, but these are the basic documents required by the majority of lenders on average mortgage transactions: 


Employed borrowers: 
Required mortgage documentation


  • Two most recent years of W-2 forms 
  • Two most recent years of federal tax returns, personal (all pages)
  • Most recent 30 days of pay stubs 
  • Current mortgage statement (if refinance) 
  • Purchase contract and copy of earnest money check (if purchase) 
  • Two months statements for any asset accounts (checking, savings, 401k, IRA, etc.) 
  • Homeowner's Insurance agent's name and number
  • Copy of driver's license or passport


Self-employed borrowers: 


  • Two most recent years of federal tax returns, personal and business (all pages)
  • Year-to-date profit and loss statement 
  • Current mortgage statement (if refinance) 
  • Purchase contract and copy of earnest money check (if purchase) 
  • Two months statements for any asset accounts (checking, savings, 401k, IRA, etc.) 
  • Homeowner's Insurance agent's name and number 
  • Copy of driver's license or passport


Retired borrowers: 


  • Two most recent years of federal tax returns, personal (all pages)
  • Social Security award letter (if applicable)
  • Pension award letter (if applicable)
  • Current mortgage statement (if refinance) 
  • Purchase contract and copy of earnest money check (if purchase) 
  • Two months statements for any asset accounts (checking, savings, 401k, IRA, etc.) 
  • Homeowner's Insurance agent's name and number 
  • Copy of driver's license or passport

Special cases require special documents:


Not all borrowers have the same documentation required, because not all borrowers are the same. Here are some documents that may be required under certain conditions:

  • Bankruptcy - Whether chapter 7 or 13, bankruptcy discharge paperwork is required if the bankruptcy is less than 7 years old.
  • Child support - If child support is being paid or received, a copy of the divorce decree or agreement in place is required.
  • Alimony/Spousal support - If present, alimony/spousal support that is paid or received must be supported by the divorce decree.
  • Gift funds - If any portion of the borrower's assets are a gift, a gift letter and supporting documentation is required. 
  • Other real estate owned - If any borrower owns other real property, mortgage, insurance and tax documents are required for each property owned. 
  • Rental income - If a borrower rents out an investment property, a copy of the current lease is required. 
  • Letters of explanation - A letter of explanation may be required in certain situations. It is simply a signed, dated letter from the borrower explaining a situation in detail to the underwriter. 

These documents will differ in certain situations and the underwriter (the person who approves a loan) may require additional documentation, but this is a general guideline for what will be required.  If any of the terminology is unclear or you have any specific questions, please do not hesitate to contact me for more info. 

Thanks for reading my blog!

Website: Mortgage Rates in Arizona

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