HELOC & HEL
To begin with, home equity is the portion of your homes value that is free and clear of all your mortgage debt obligation. Simply put, it’s the amount you’re left with after dividing what you owe on your mortgage from your home’s current value is home equity. A HELOC is a revolving line of credit that allows you to draw on equity over an extended time. This differs from a home equity loan or HEL that gives you a fixed amount of your equity in one lump sum. Both loans are good options to do updating or renovations that you have been putting off.
Cash Out Refi
On the other hand, there is a third option using a cash out refinance which allows you to refinance with access to cash at closing. This option is a good one if you’re planning to refinance your loan to a lower rate or better loan terms. For instance, a cash out refinance allows homeowners to cash out equity and get a new mortgage under one expense. For these reasons, the cash out refinance is a popular option for homeowners. In addition, cash out refinance offers access to capital to build retirement savings or move equity to a better investment during periods of unstable futures in real estate markets such as bonds or IRAs. This allows you to keep some of your equity on the balance sheet without it potentially vanishing to real estate market forces.
Credit Scores & LTV
Most lenders will require a credit score at the very least around the mid 600′ and an LTV of 85% to qualify for a single famliy home. Investment properties LTV is 75% including multi family 2-4 unit housing. To be sure, there is an easy mortgage calculator online to determine your LTV qualifications.
Appraisal Reports Serve To Protect Consumers
An appraisal is a professional estimate of the value and a crucial stage in the lending process for the borrower. You should be getting an appraisal completed by a state licensed or certified appraiser on all housing finance transactions. Appraisals are completed by licensed or certified specialists providing unbiased and fact based evaluations per Fannie Mae requirements and USPAP. Appraisers are compensated for appraising your home. However, they have no stake in whether you qualify for a line of credit based on their value estimate. This is the safest way to verify if your home value is credible and reliable. It’s important to point out that not doing so could be jeopardizing your cash position on your home.
Choosing An Appraiser
A homes value for qualification for a HELOC , Cash out refi or Home Equity Loan should only be estimated by a licensed or certified appraiser. The appraiser is typically selected by a lender or 3rd party such as an appraisal management company. Ideally, appraiser selection is based on having the knowledge and competency required to perform a professional quality appraisal. In addition, appraisers must have the experience appraising the particular property type in the geographic location. Also, appraisers must have knowledge about, and access to the necessary data sources for the area the appraisal is located.
What Are the Appraisal Requirements?
Many homeowners have been asking if an appraisal is required for equity loans when a friend or neighbor didn’t need one. In short, for most home loans the answer is yes, when an appraisal is required the appraiser looks into the transaction records of properties similar to yours. They ideally select properties that have recently sold in your neighborhood. In addition, based on the property inspection data as well as local market information the appraiser estimates your home value. This value, along with income, assets, and credit history, is used by the bank to determine under what terms and amount they will lend.
Furthermore, based on your credit rating, type of home and risk associated, the lender chooses the type of appraisal needed. Generally speaking, the lender will order the minimum type of appraisal required to secure your loan approval. Your lender may order anything from a full interior appraisal to a drive by or desktop appraisal report.
Appraisal Waivers
In certain instances, qualifying borrowers and transactions may be granted an appraisal waiver. It is important to note that an appraisal waiver does not negate the determination of your home’s value. Instead, the valuation method relies on CU or Collateral Underwriter risk scores. Specifically, for qualifying transactions, home values are exclusively determined by the in-house algorithm analytics results of the Government-Sponsored Enterprises (GSEs), namely Fannie Mae and Freddie Mac. These value estimates, generated internally, serve as the basis for supporting home values, eliminating the need for an appraisal report conducted by a licensed appraiser.
Presently, less than 5% of all home loans qualify to use the waiver option for collateral risk assesment. However, the home value accuracy and risk this poses to homeowners and the US housing market is a topic for another post. Do you need an honest and precise appraisal based on knowledge, education and experience? Click Contact us for a quote or call/text 630-995-5421. We answer our phone so don’t hesitate to call us with any questions you may have.