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As a licensed real estate professional here on the beautiful Kitsap Peninsula in scenic Washington State, I have the privilege of serving a very large military community, comprised primarily of active-duty US Navy personnel  and their dependents stationed at Naval Base Kitsap.

Given that fact, many of the Buyers and Sellers I represent are party to transactions  that involve VA Financing. As a Navy veteran myself, and former submarine sailor, I have firsthand experience with the benefits of using a VA home loan. Our first two homes were purchased using VA Financing. It’s one of the few ‘Zero-Down‘ loan products still available in today’s lending market.

I take my roles and responsibilities as an agent very seriously, especially as it relates to representing my clients best interests. It’s not about me, or what’s in it for me, but what is best for my clients and helping them successfully achieve their home buying or selling goals.

One my tasks in a real estate transaction  is anticipating any potential problems or pitfalls, and ensuring the entire process goes smoothly. This skill is acquired through an intimate understanding of the real estate business, maintaining clear lines of communication, and many years of experience as an agent.

Unfortunately, regardless of how hard I may try, there are times when certain circumstances are beyond my ability to influence or control. Such can be the case with VA Financing, and, in particular, VA Appraisals.

Many times, VA Home Buyers are under the false assumption that once the home/pest inspection is completed and associated repairs are negotiated with the Sellers, that things will progress rather smoothly until closing. However, even after you conduct the home inspection, the VA Appraiser may find additional problems (or ‘conditions’) that will need to resolved/repaired before the loan can be funded.

Case in point:   In one of my recent VA transactions, my Sellers had a large cedar deck off the back of their house. At its highest point, the deck was 24 inches above ground level. The deck did not have any railings or handrails.

In our area, VA Appraisers use the WA State Building Code to determine allowable deck height before railings need to be installed. If a deck is 30 inches or more above ground level, then railings are required. Based on this, I counseled my Sellers not to install the railings.

After the Buyer’s Home Inspection was completed, the VA Appraiser conducted his analysis. The home came in at value, and there were NO conditions. Or so we thought…..

A week or so after the appraisal, some ’salary-justifying’ bureaucrat in the VA Regional Office in Denver disapproved the appraisal, citing a health/safety issue. The VA Appraiser was told to amend the appraisal and insert a condition that now required for railings to be installed on the deck.

When we attempted to gain some clarification on the ruling, we received a very rude and abrupt response.

“If you want the loan to fund, install the railings, PERIOD!”

I wondered to myself – “At what point/height does a deck become a safety concern? Two inches above the ground? 10 inches? 30 inches?”

You would think the VA would use some kind of uniform standard to make consistent determinations in such instances.

Unfortunately, in this instance, the determination was simply the personal, subjective opinion of someone stuck in a cubicle in Denver as to what constitutes a safety/health issue.

Luckily, we moved on from there, and the transaction finally closed. But not before a lot of unwarranted stress and delays were added to the process.

Not all VA transactions are problematic, like this one. VA Home Loans are still one of the best lending products available for veterans and active-duty personnel. Still, it’s important for Buyers and Sellers to be aware of such potential difficulties.

Got any VA Loan or Appraisal horror stories? Feel free to share. The more consumers are aware of such things, the better prepared they’ll be!

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Rich Jacobson is a licensed real estate professional providing knowledgeable empowerment and relentless representation for his clients of residential properties and vacant land throughout all of Kitsap County WA and portions of Pierce, Mason, and Jefferson Counties. You can also find him at KitsapLife.com, ActiveRain, Crabbing in the Hood, Facebook, Twitter, or e-mail:  kitsapagent@gmail.com

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Tags: Kitsap County WA real estate, naval base kitsap, va appraisals, va appraisers, va financing, va home loans, va transactions

One of the best things about living here on the Kitsap Peninsula in scenic Washington State is that we have the good fortune of being part of a very large and thriving military community. Our area is home to thousands upon thousands  of active-duty Armed Forces members faithfully serving our Country, along with their dependents, and many retired veterans as well.

Under the collective command of Naval Base Kitsap, there is the Puget Sound Naval Shipyard in Bremerton; the Naval Undersea Warfare Center in Keyport;  and the expansive Bangor Submarine Base. As a licensed real estate professional serving clients throughout Kitsap County WA, I have had the good fortune and pleasure of working with many of these hard-working, dedicated patriots and their families.

A good many of my active military or veteran clients elect to use VA loans for their home financing. As a veteran myself, my first two homes were purchased using VA loans. It can be an excellent choice of financing products to use, requiring very little out-of-pocket expense, and with fairly competitive rates.

However, one of the potential drawbacks or difficulties associated with VA financing can be the appraisal process. Simply being aware of this possible pitfall helps to prepare my clients ahead of time.  It’s something that I always take time to educate my Buyers about fully.

Here is the process in a nutshell:

As a Buyer, your agent diligently assists you in finding a home that meets your needs. Once you find the right home, you submit an offer, and hopefully, your offer is accepted. At that point, you hire a licensed inspector to conduct a full home & pest inspection, and identify any items that need to be addressed/repaired. After the inspection results are negotiated to the satisfaction of both Buyer and Seller, you will enter the “pending” stage of the transaction. At this point, your Mortgage lender will contact VA, and they, in turn, will order an appraisal to determine if the property can be valued at the price that you have agreed to pay for it.

Here in Kitsap County WA, our mortgage partners rarely know who the appraiser will be in a given transaction. It’s a Russian roulette. If you’re an approved VA appraiser in Washington State, your name is simply added to the list, and whoever is next on the list gets the call. It may be someone local who knows and understands the nuances of our market. Or it can be someone from another county altogether.

In most of my experiences, the VA appraisers have been fair and reasonable. But there are times when they can be extremely picky or subjective. Usually, they try to stay focused mainly on major structural components and primary systems. They evaluate the roof, foundation, plumbing, electrical, heating/cooling, etc.. Unfortunately, on occasion, they can become overly critical of other aspects of the home that are not necessarily critical to safety or proper function/operation. These aspects then become ‘conditions for funding’ and require resolution before the transaction can close.

Many Buyers assume that since the home inspection was performed, and the Sellers may have agreed to repair the things they requested, that everything is pretty much a “done deal” until closing. Unfortunately, there may be some additional items that the VA appraiser will call out that need to be remedied or repaired prior to closing. In some instances, these items can be small and easy to resolve, or they can present significant challenges and even cause the transaction to fall apart.

Additionally, in a slower, declining market, appraisers tend to be much more critical in their analysis of comparative property sales. Valuations can come back ‘under’ value and may require a re-negotiation of the contract sales price between Buyer and Seller.

An experienced real estate agent will wisely counsel their Buyers not to assume anything and to wait until the full appraisal results come back. Hopefully, the appraiser will not find any problems or issues that were not identified during the home inspection, and the appraisal will come in at value. If that’s the case, then the rest of your home buying experience should move along fairly smooth to closing, and you will successfully achieve the Next Adventure in Life!

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Posted in Bremerton WA Real Estate, Buyers, Mortgage Bites | 2 Comments »

Tags: va appraisals, va appraisers, va loans

John and Mary are frightened and more than a little upset. They need to ask for an extension on the closing of their new home purchase because the financing is not ready. They made an offer on their new home 26 days ago and had no idea their Loan Approval Letter was not worth the paper it was written on! Now their Earnest Money is at risk and the money they already spent on a moving company is in question. In addition, they have already paid for the appraisal.

When is a loan approval not a loan approval?

This is not a frequent occurance. It does happen often enough that savvy Realtors® and experienced sellers are somewhat wary of Mortgage Pre-Approval Letters from loan officers they don’t know through previous transactions. The reason they are wary is simple. Experienced Realtors® know that Pre-Approval Letters are written by loan officers, and loan officers can’t approve loans!

The who’s who of a mortgage transaction.

A Loan Originator is the real name for a person like me who is more commonly called a Loan Officer. A loan originator does exactly what the title implies. He or she creates (or originates) mortgage business. A loan originator’s primary job is to supply a never-ending flow of new loan clients. The title of Loan Officer is rather misleading. A good loan originator does not have to work very hard to maintain a flow of business. Previous happy clients and satisfied Realtors® will keep him or her pretty busy without the need to spend much time marketing.

After they find a client to work with, loan originators are responsible for making certain everything that must be done to close the loan, is indeed accomplished. This includes coordinating a Title Company, an Appraisal Company, a mortgage processor, two Realtors® (one for the buyer and one for the seller) and of course, the borrower. But, a loan officer does not approve loans.

The Loan Underwriter is an employee of the bank. The underwriter’s job is to make sure the borrower (represented by the Loan Originator) fits the Lenders Guidelines for Approval. The underwriter is the person who actually approves the mortgage loan. Very few borrowers ever speak with a Loan Underwriter. Many underwriters prefer it that way. They are busy people who want to be able to move quickly from one loan to the next. There jobs are dependent on speed and accuracy. Getting bogged down with client phone calls does not help with either speed or accuracy.

Whether you, as a borrower, are working with a Bank or a Mortgage Broker, your primary contact is probably a Loan Originator, not an underwriter.

How do you make sure your Pre-Approval Letter is worth something?

A Loan Commitment Letter is the document an underwriter sends to the loan officer once a loan is approved. This is the real thing! A commitment letter will detail every aspect of the mortgage. It will include the terms and interest rate. It will itemize the “Conditions” (the items that must be provided or explained for final approval). The commitment letter will be dated and it will have an expiration date. It may be signed by the underwriter. The Loan Commitment Letter is a formal, legally binding document.

So, if you want to be sure your pre-approval is really an approval, request to see the Commitment Letter! If you are unfamiliar with anything in the letter, have your loan officer explain the unfamiliar portions. It is after all, your loan commitment letter and there is no reason you shouldn’t see it!

In Washington State and many others, the seller has the right to request this proof from the Buyer’s Agent. If the seller has a savvy Agent, the Agent will verify the validity of the Pre-Approval Letter by requesting a Loan Commitment Letter.

In John and Mary’s case, had they simply known to ask for a copy of their Loan Commitment Letter, they would have found out that the loan was not yet approved when the Pre-Approval Letter was written. It shouldn’t have happened the way it did, but this happens often enough that as an educated borrower, you must verify that your pre-approval is a genuine approval.

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Tags: bremerton real estate, first time homebuyers, port orchard real estate, poulsbo real estate, silverdale real estate

Everybody loves a sale! It’s easy to get so caught up in the illusion of saving money that we either spend more than we should or we squander hours (and money) trying to find an even better deal.

About two weeks ago the Wall Street Journal announced, in a very short article, that the U.S. Government is considering a fixed 4.5% interest rate for mortgages in an effort to stimulate the economy. The article was very short; about 6 sentences. It quoted no sources and gave little information. But, boy did it cause a flurry in the newspapers and on the Internet. And ironically, almost immediately, activity in Mortgage Offices slowed down. The telephones got busier, but mortgage application activity slowed down noticeably. Why? Because everybody loves a sale!

Shortly after the WSJ article was published, the telephone started ringing. Clients wanted to know when they could sign up for the new 4.5% interest rate. All of the callers I spoke with were disappointed to find out that this program is not available. It may become available at some point in the future, nobody knows. It’s just an idea at this time, not a fact. Our Government might institute the idea, they might not. Almost every phone call ended the same way. “Well, I think I’ll wait to see when that new program starts and I’ll get my mortgage then”, or a variation of this comment.

It didn’t seem to matter that 5.125% was available that day. Nor did it matter that over the next week rates dipped slightly (they can’t dip much right now because they are already so low). Almost everybody had their sights set on 4.5% and nothing else would do. Many people, it seems, want to wait for the “maybe”. In the meanwhile, incredibly low, very attractive interest rates are being overlooked while an entire segment of the population waits for something better!

I can’t help but wonder how many hundreds of thousands of dollars will be lost to homeowners who are so focused on the 4.5% interest rate that they will ignore terrific interest rates already available. Will you be one of the people looking backwards thinking “What was I thinking? 5.25% was a great rate!”.

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The banking system in the USA is in crisis. The Fed keeps lowering Federal interest rates, but mortgage interest rate predictions are still going up – how can this happen? And what might it mean for home owners today?

The relationship home owners need to grasp to understand interest rate predictions is the interplay between interest rates set by the Fed and mortgage interest rates charged by mortgage lenders.

Interest rates that are set by the Fed flow into the cost of funds to mortgage lenders. Banks and other lenders don’t possess all the funds they lend out when a mortgage is written – they borrow on the wholesale market 90% or more of what they lend out to home owners, at interest rates lower than the mortgage rates they charge home owners for their mortgages.

Banks make their profits from the difference between what they pay when they borrow money, and what they charge when they lend it out.

When the Federal Reserve lowers interest rates, it lowers the borrowing costs for financial institutions, so you would think that mortgage interest rate predictions would fall. However, financial institutions may choose not to pass on the savings to mortgage holders.

The reason for this is not greed – there is adequate competition in the mortgage lending market to ensure that no bank or other lender can profit unfairly. The real motivation is that being a bank that lends for mortgages just became a whole lot more risky, and risk tends to make banks raise interest rates.

Financial institutions are everyone more interest to compensate for their losses on the few who will miss payments on their mortgages.Until the current housing market settles, risks for lenders will remain elevated, and mortgage rates forecast will continue to be high.

The Fed can’t lower interest rates indefinitely. The actual interest rate (called the “nominal” rate) includes inflation. To find the “real” interest rate, you need to subtract the inflation rate from the nominal interest rate.

Today, when you do that, you get a negative number! This means that nominal interest rates are not even high enough to keep up with inflation.

Clearly, this is a situation that cannot continue for long. Sooner or later, probably sooner, the Fed will have to raise interest rates to at least break-even levels, matching the rate of inflation. As soon as it happens, the prime interest rate rise will flow through into mortgage interest rates. The only way is up for the mortgage interest rate forecast.

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