Appraisals - the dilemma.

[beowulf]

I can't resist talking about my blanket mortgages!!!!

We bought our first home for $20K in 1985. 4 years later we wanted to buy vacant farm land. 20 acres for $30K. Farm Credit Services suggested we use a local Savings and Loan and get a blanket mortgage. Normally, they'd want 25% down on vacant land. So we'd need to come up with $7500 down payment for the land. However, the blanket mortgage covered the value of the land plus the value of the equity in our home in one mortgage. Since the house was paid off, the combined value of the house and the vacant land was $50K. We already owned $20K in equity on the $50K total value. That's 40% in equity, which is more than the required 25% down. So we were able to purchase the land with no money down. Seems shady, but it's perfectly legal. So we did it.

4 years later the land was paid off and we wanted to move to a larger house. The current house was worth $30K, and the one we wanted to buy was $65K. We took out another blanket mortgage on both houses. So $95K in total value, of which, we already owned $30K in equity, so a bit over 33% of the total value. Again, no money down to buy the 2nd house. Only stipulation was when we sold the 1st house, we had to give the S&L enough cash to bring up the equity in the 2nd house to at least 25%.

None of this applies to you. I just couldn't hold it in any more.

Well done.

 

[beowulf]

Well, all of you that have followed this and weighed in on my saga (and saga is the right word) deserve an update. The background: We want to build a second home on our property and sought financing. Many lenders approved loans but subject to an appraisal which they could never get done. So, out of some frustration, I decided to simply go with my own bank and a HELOC. A HELOC made some sense as the purpose of the loan was to build a second home here (daughter and SIL) on our property and that way we could draw on the funds as needed - over the course of a year or so.

Anyway, I advised my bank that we wanted to build a second home on our 90 acres, that the County had advised we had a right to do that, that other lenders had approved loans 'subject to an appraisal' but were apparently unable to get an appraisal done (those efforts over a period of months). They said if I applied for the HELOC they would immediately get on it re an appraisal. I applied. They did get right on it but told me the first six appraisals turned the job down, but they did find one guy, but he wanted $2,500 and could not get to it for about a month. After some discussions, we agreed to that.

So, the appraisal was done on 9-15. Nice guy. He told me he would finish up with the comps within a week or so and send it all into the bank. Well, stay with me here. On 9-29 the bank called and said that the "underwriters" had to turn the loan down because the stated purpose for the HELOC funds was to build a second home and that would be considered "a construction loan" and the bank did not make construction loans. This despite the fact that the original application stated that the funds would be for constructing a home, and that was discussed in the course of the loan process. The particular loan officer I was dealing with confided that she was floored and shocked by the decision but had no control over the underwriters.

Now, the HELOC loan was approved initially subject only to the appraisal. We have no debt, property worth $675,000 (the appraisal), would only borrow about $250,000, FICOs in the 830s, substantial liquid assets, and very ample monthly income. And while not a qualifying factor, our daughter and SIL will be servicing the debt anyway.

After a brief discussion, they agreed to refund the appraisal fee we already paid, and to give me a copy of the appraisal - but no cigar.

I will now go back to the other lenders which approved the loan 'subject to an appraisal' but which could not locate an appraiser, and see if they can use the appraisal from my bank to git er done. Frustrating.

I will identify appropriate bank top managers and write a fully explanatory letter - they may not know all of this. I will also start the process (PITA) to change banks - simply because it is difficult to stay with this bank given all of this.

Okay, thought you would all like to know where this all went.

 

[Steppenwolfe]

Good Lord.... Tenacity must be in your DNA. Good luck.

 

[beowulf]

Good Lord.... Tenacity must be in your DNA. Good luck.

Yeah, my wife would say 'stubborn', but yeah.

And actually no choice here - need to get it done and confused why it should be so difficult.

 

[Torvy]

I'd not read far enough to see the costs in involved in splitting it. My mistake on that.

Whether they can use age as a determining factor or not, I can tell you without a doubt that a lender is going to look at expected lifespan as part of their determination of the ability to repay. Sometimes it means they require credit life insurance, sometimes it means they don't approve the loan. There are lots of reasons that can be used to officially deny credit to older borrowers, like income is from investments instead of a W2 job.

I can tell you as a former lender that any even remotely reputable lender will not even get close to doing that. (Meaning only under the table types) No lender wants the CFPB crawling up their backsides. Banks do not care if you die before the loan expires because they have a lien. Creditors get paid first. Banks care about credit worthiness and LTV. (loan-to-value) I've been through a lot of bank audits, what you are suggesting is urban legend more than any semblance of reality.

 

[Torvy]

So, the appraisal was done on 9-15. Nice guy.

I will identify appropriate bank top managers and write a fully explanatory letter - they may not know all of this. I will also start the process (PITA) to change banks - simply because it is difficult to stay with this bank given all of this.

Okay, thought you would all like to know where this all went.

Beowulf, on behalf of lenders everywhere, I apologize. I was a back office guy, I managed underwriters and documentation clerks, among other things. The most likely scenario is your loan officer either a) didn't know the loan rules b) ignored the loan rules hoping the UW would somehow fix it or c) didn't understand it when the UW told him/her no. Unless the sales person...er, loan officer, reaches out to the UW, the UW has no idea what they are doing until they submit the documents. Sales people get compensation on sales, ergo, they often try to push through things that are out of scope. A better salesperson would have worked with the UW ahead of time to figure out a way to make it work. UW do not get paid on commission, they do however lose their jobs when they exceed their authority.

 

[beowulf]

Tovy, thanks for the input. I really don't know why or how it happened this way but your explanation may be correct. BTW, after this happened I went through the multi-paged document packet they provided, which included 16 pages of "What You Should Know About Home Equity Lines Of Credit" to see if there were any restrictions mentioned re the use of the funds - there were none. It seems like that would be an appropriate place to set out any restrictions such as they now present - i.e., that they will not loan on an HELOC if the money is to be used to construct a home on the property.

And, I was at it again, and may have found a lender who will not require a new appraisal (getting the appraisal was the real issue - not getting a loan approved) if the bank will release this appraisal to them - seems like that would be the least they could do. We shall see.

Again, thanks for responding. I remember the call before the one where they called to say no - the loan officer called and said they had received the appraisal, every thing was fine, and that there was only one last question that the underwriters had - what was the money going to be used for? I wonder if they would have approved it if I would have said I was going on a year long cruise - as vacations are mentioned as a reason to get a HELOC. It never crossed my mind to not tell them how I was going to use the money.

 

[Torvy]

Yes, with a HELOC it would be better to be vague about the end use. You can use a line of credit for quite a few things, you could have said almost anything except something directly real estate related.

 

[beowulf]

Yes, with a HELOC it would be better to be vague about the end use. You can use a line of credit for quite a few things, you could have said almost anything except something directly real estate related.

Interesting - one of the suggested things to 'market' the HELOC was for a vacation home. Not certain what was meant by that though.