Don't Let Appraisals Stop Your Refinance

Over the last three years appraisals have been a challenge to many transactions and in many cases become a deal killer. Buyers that purchased at the top of the market have become trapped in a declining market that imprisons them in the current situation with few alternatives for improvement. If they wish to sell, they find their equity gone so there are no funds for a down payment and closing costs on a new home. If they want to refinance and take advantage of the current low interest rates, a low appraisal creates too high of a loan to value ratio and the loan is declined.

Recently the State of Indiana created a program to help those buyers caught in the move with no equity. Their Next Home Program offered a grant for the down payment and closing costs and the grant was forgiven if the buyer lived in the new home for three years. The program lost their servicing agent but hopes to be back in action by springtime.

The roadblocks to refinancing have also begun to be addressed. There are many home owners that still have interest rates above 6% because the home won't appraise for as much as it was purchased for. In some cases a home that was purchased with 20% down payment would now require mortgage insurance (MI) and ruins the financial gain. But what we are seeing now is that with rates close to 4%, the gain with the lower rates is great enough that it even make sense including mortgage insurance. And with a monthly insurance premium, the borrower can have the MI removed if the loan to value falls below 78% again. This creates a situation with lower payments immediately and a possible bonus improvement in a few years when values move back toward historic norms.

Now the Federal government has expanded their programs under HARP ( Home Affordable Refinance Program). Previously this product helped people who have loans already owned by FNMA or FHLMC by allowing an appraisal waiver or a loan to value as high as 105%. If the current loan did not have MI, the higher LTV would be allowed without adding MI. If the MI coverage would normally increased it was allowed to remain at the previous level.

Now the HARP program has been further expanded to allow a loan to value up to 150%. The product is for owner occupied properties and follows generally standard qualifying guidelines with the appraisal exceptions. And the key benefit is to help people who view the house as a home regardless of the current investment value. This will help lower their home payment and stimulate their personal economy.

There is ample data proving that lowering housing expense helps stimulate other economic activity and slows down delinquencies. The new expansions of the program will immediately help the economy and over time will contribute to the improvement of the real estate market in general.