A Home Warranty May Be a Good Idea for Your Home

The home warranty has at some points been a bit confusing for buyers. They wonder what it is and what does it cover? How is it different from homeowner's insurance? Some feel the home warranty may be a waste of money and others end up using it right away and were thrilled they got one. Essentially, it is similar to an auto warranty you get with your new car. The policy will cover some items that break in your home, but not others. Deductibles generally apply.

The Real Estate Purchase Contract has a spot right in the contract that spells out whether you wish to have a home warranty as part of your closing package. The Home Warranty section in the Utah approved Real Estate Purchase Contract is section 10.1.

Most agents representing a buyer will recommend asking for a policy to be bought for the buyers and paid for by the sellers. As a buyer’s agent, I have not always recommended this to be the case. If the buyer wants to get aggressive for any reason and place the best offer forward (especially in a bid war), they may not ask for a home warranty. Each situation is different. 

I would recommend that you ask your agent to give you a few reputable companies to review. Get a copy of their policy and see what items they cover, what their deductable is, and how long the policy will last. Most policies last a year from date of purchase. The companies will generally send you a form to renew your policy at the end of the year if you wish.

 You can buy extra coverage for certain items like hot tubs, pools, HVAC systems, etc. Make sure you review the policy against the home you are buying to get the most efficient coverage possible.

Next post – Flood zones and flood insurance

Should you get a Survey for Your New Property?

Should you survey your property? Is it the seller’s responsibility or the buyer’s?

Every state is different and it is best to ask your Real Estate representative prior to signing a purchase contract. In Utah, it is a “buyer beware” thought process. This essentially means that the buyer takes on the responsibility of paying for all of the inspections, surveys, etc., as part of the buying process. If you want to request the seller provide you with a survey, then it’s good to make that part of your requests in your purchase contract. It is the buyer’s prerogative to ask.

I suggest you ask for references on local surveyors and get quotes from three different ones. I’ve seen pricing on the same parcel go from $700 to $3,000 depending on the surveyor. You also need to make sure your surveyor is giving you the type of survey you need. A metes and bounds only? Add survey caps in? Topographical lines added? What kinds of features do you want listed? Fences, improvements, flood zone lines? Make a list and ask your surveyor what things he/she might suggest you add as part of your survey.

I highly recommend surveys, especially for raw land parcels or lots outside of subdivisions. Homes and lots inside newer subdivisions should have recent surveys done. In these cases, it may be good to get a surveyor to highlight or place points if they are missing.

I’ve seen land parcels where a neighbor built half their cabin on the adjacent parcel. I’ve seen surveys where the neighbor built their rock wall fence and driveway partially onto the neighbors yard. I’ve had properties surveyed where the surveyor found major mistakes from the previous surveyor and we had to spend an extra couple of weeks correcting the line discrepancies. If there is any question at all where your lot lines are PLEASE GET A SURVEY! It could save you thousands of dollars, court time, headaches and grief. 

If you are concerned about your surveyor, I'd recommend getting references, checking to make sure their license is in good standing, etc. The best thing to do is ask your Realtor. They, no doubt, will have various referrals to suggest.  If you are using an engineering firm to build your home, they will also have a survey crew as part of their team.

Next post:  Home Warranty

 

5 Hazardous Waste Products that could be on Your Purchase Property

You may have diamonds in your eyes as you are purchasing your new home or land. You may believe it’s impossible for hazardous wastes to exist on your property. Regardless, it is always a good idea to get an expert opinion from a professional in the field. There are several good professionals available in the Zion Canyon area.

Your Real Estate agent may know some general information about hazardous wastes, but, unless we are considered an expert, our opinion should not be relied on. Ask your real estate agent for referrals of experts in the area.

Here are examples of hazardous waste that could affect your purchase property:

1. Lead Paint

Lead paint is generally a potential concern in buildings built prior to 1978. It was banned after that. If the home you are buying is pre-1978, then a lead paint pamphlet is required to be given to the buyer. The seller is required to provide the buyer with a lead paint disclosure. All parties including the Real Estate agents involved sign this disclosure.

The buyer then has the option to have a lead paint test performed on the home to determine if the paint has lead. If it has lead, then it does not necessarily mean that the buyer should opt out of the sale. As long as the buyer knows the proper procedures for mitigating lead paint and they are willing to accept those conditions, then that is all that is necessary.

2.   Radon Gas

Radon gas is a naturally occurring gas that emanates from various parts of the earth. When it is allowed to build up in an enclosed space and inhaled for a period of time, it can cause all kinds of damage. In the out of doors, where it is allowed to dissipate into the atmosphere, it is not dangerous. Newer homes have more of a concern for potential radon, especially those with basements. I would highly recommend researching the “in’s and out’s” of radon gas so that you understand what it is, what it can do and how to mitigate it. Most home inspectors know how to test for Radon.

3.   Asbestos

Asbestos was used in the early part of the century for its fire resistance, tensile strength, sound absorption and affordability. However, if particles are released into the air and inhaled, then it can potentially get lodged into your lung tissue thereby causing serious diseases like lung cancer, mesothelioma and asbestosis. If you have asbestos on your property, it’s best to have it removed by a professional so that you can avoid the release of fine particles.

4.  Methamphetamine

Some homes have been condemned due to methamphetamine production that happened on sight. The residue left in the building is extremely dangerous to live around. The building does not have to go through an outright destruction. It can be professionally cleaned up.

Some buyers may still not choose to live there. I believe that, even though it may have undergone a clean up, the value will be decreased simply due to the amount of buyers that will decline on purchasing it regardless of clean up. You may only find out about this hazard by talking with the local police department and seeing if it was ever condemned.

5.   Hazardous Waste Dumped on Land 

Lastly, we will discuss potential hazardous wastes that have been dumped on/in the land.

Examples:      a. Old town dumps that occurred on the site.

                       b. Old gasoline tanks that were buried under ground.

           c. Old barrels of fuel/oil that were dumped on site.

Please wander your ground and look carefully everywhere. Ask the neighbors. Ask a qualified environmental engineer.  Ask the governing body. You may be amazed at the information you receive.

There are federal laws that require the present landowner and ALL previous owners be responsible for the cost to clean up any hazardous wastes. Even if you owned it for a couple of months and knew NOTHING about it, you still may be required to share in clean up costs. Always better to be safe then sorry!

Important Point 

TAKE THE TIME TO RESEARCH YOUR PROPERTY 

Buying a Rental Property in Zion Canyon Area

The second item on the due diligence checklist is rental of property. This is a pretty important part of your inspections from two angles. You should ensure that the property is either not presently rented out or, if you intend to rent it, that your type of rental is legal. We will discuss them both separately. 

The property you want to buy is being rented

 

If the seller does not occupy the residence but has rented it out, then you need to understand that the sale and purchase does not affect the rental agreement in place. 

For instance, if the renter has a year lease with the seller and they are into month 7, then the lease still has 5 months to go before the lessee can be given notice that the rental agreement will not be extended. 

As a potential buyer you will want an inspection period to review the rental agreement, the rental deposit amounts, and the rental payment dates to see if you are in approval of continuing the purchase with the rent agreements as they are written. 

During the recent recession buyers and sellers also needed to be aware of the legality of “who has possession” of the residence. Some sellers had left the property vacant only to find months later that someone had “moved in” to their unawares. The buyer would follow through with a purchase only to find they then had to “legally” extract the person(s) in possession of the home. I admit this is infrequent, but it is an issue to pay attention to. If you go into a vacant home and see mattresses lying in the corner don’t just assume it is the sellers. Ask.

If you intend to rent the property you are about to purchase

 

There are many investors that purchase a property with the intent to rent it out to someone. I’ve seen buyers who want to purchase a home in a popular tourist area with the hope they can rent it out on a nightly or weekly basis to vacationers. They have no idea that many towns in southern Utah have special zoning regulations for rental properties and residences. 

These zones are either commercial or resort or some other type of zone. The governing municipality then requires you to register the rental and pay a “bed tax” on your income. Since I focus most of my efforts in Zion Canyon area, I have talked with many hopeful buyers who want to rent their property to help pay for it as their vacation home. Springdale and Rockville do not allow nightly or weekly rentals in residential zones. Springdale allows it in two commercial zones. Rockville discourages any commercial use whatsoever. Springdale, Rockville and Virgin all allow rentals that are considered “month to month”. 

Renting a residence in a subdivision

 

Wherever you purchase your home, you need to discuss your intentions to rent with the local zoning office, as well as review any C,C & R’s of any subdivision you may be buying into. 

Many subdivisions in St. George began to disallow rentals or greatly discourage them due to the large increase of investors buying in the area with the only intent to rent back to people. The subdivisions found that as the area became largely a rental population the grounds around the homes became disheveled and unsightly. Renters  are often not encouraged to take care of the grounds and out-of-state homeowners do not necessarily have the same pride of home ownership as an owner occupied residence. 

To sum it all up:

So motto of the story is always research the home thoroughly for rental and occupancy issues. If your intent is to become a landlord, look into all possible issues with legality of your use, as well as what kind of “bed taxes" or "use fees" you may be required to pay.

Next week:

Hazardous waste and toxic substances.

5 Keys to Closing on a House or Property in Southern Utah

Sorry for the delay in this next post. Life got away from me for a bit. Holidays happen and life gets hectic for a time. I am sure you all can relate.

To continue with our home buying saga...


Once you have an accepted offer, boy oh boy, the time clock starts ticking. So much to do before you can close! There may be an inspections period that ends prior to your loan denial deadline or possibly just after.

Key 1: Look at section 24 of the Real Estate Purchase Contract (for Utah).

Every situation is different. Look at section 24 of the Real Estate Purchase Contract. This will name the important dates you need to keep in mind for your contract period.  Write them down and then read section 8, 10 and 11 again very carefully. (Notice I said 'again', many people skim through the contract before signing it. You should read the contract over very carefully prior to signing it. Always ask your Realtor questions about the meaning of any section in the contract).


These sections carefully explain your inspections, appraisal and loan process, as well as accepting the current condition of the property once you close. Once you close, it can be very difficult to prove any wrongdoing by the seller, so try to make sure you are willing to take the property after you close, problems and all.

Key 2: Use the "Buyer Due Diligence Checklist" as your inspections checklist. 

You may have signed a form called: “Buyer Due Diligence Checklist”. This form is fairly inclusive of all the inspections you may perform on your intended purchase. I recommend reading this form over very carefully and using it as your checklist to ensure you have checked over each item during your inspections period.

Key 3: Always verify opinions you hear with a licensed professional.


The first section to read is the box that outlines the idea that your Realtor is most likely not an expert in any other profession outside of helping you to fill out the Real Estate Purchase Contract and the addendums. Unless they are a licensed CPA, attorney, builder etc., you should always verify any opinions you may hear with a licensed professional who is also working for your interests.

Key 4: Contact the 'planning department' in your area and ask questions about your property. Ask if there is anything you need to be aware like regulations or zoning laws.


The first item listed on your checklist is building code/zoning compliance. Your property is most likely under the jurisdiction of either the county, town or city municipality in Utah. You should understand the difference in the areas.


Each municipality I worked in had their own set of zoning laws and building requirements. Each area also needed to be in compliance with state laws as well. We have installed a link to each municipal website in our communities section for Zion Canyon area. I highly recommend you contact the planning department in your area and ask questions about your property. Have the town planner look at the prospective parcel and ask if there is anything you should be aware of that could negatively or positively impact your parcel. Have the planner explain any regulations that you might not understand.


I have been involved with a number of purchases where the potential buyer could easily lose or have lost their money by buying a property that has zoning issues that are not being relayed to them by the seller or the seller’s agent. These issues, more likely than not, are not understood by either party and/or how they affect the parcels value.


For instance, one area in Rockville has several small lots that come up for sale and, oftentimes, they cannot be built on. A land owner some time ago subdivided a larger parcel into several smaller lots and either sold them, gave them away or traded them for debt’s he incurred (hard to say as the grapevine is not always reliable). He did not go through the proper subdivision process with the county (the land was county land before it was annexed into Rockville). So the county did not approve the subdivision but the recorders office recorded the lot splits and gave individual tax ID’s to each new lot.


To a prospective buyer that does not understand the rules, it appears these lots could be built on. They may overpay for a parcel of ground that can only be camped on part of the year. This story illustrates how important it is for the seller to know what they are selling and the buyer to know what they are buying.

Key 5: Do the homework in order to understand the zoning processes in your area.


I have also found that it is very “enlightening” for the buyer to do this homework themselves. That way they will know the appropriate personnel to talk to and they can really understand the zoning processes in their area. The better informed they are the more they can fully appreciate the parcel they own.


I have realized it is better for me NOT to do this work for the buyer as they often don’t remember the concepts I try to relay. I think they understand the issues I am trying to relay, but they don’t. If the buyer does the work themselves it seems to stick better and they understand the process better. 

Tips and How-to's on Buying a Property or Home in Southern Utah

The home buying saga continues……

You have found a Realtor you are comfortable to work with and have figured out your financial abilities and how you hope to purchase your property. The next step is to start reviewing the properties for sale out there. I usually start by reviewing all the properties listed on the Multiple Listing Service. The local MLS will have the majority of the properties for sale. You can also get out there and drive around and see if there are for sale signs on parcels that are not listed.

Not all Real Estate agents belong to the Association of Realtors. Those that do not belong are not called Realtors, (that is a trademarked name) and they do not have access to the MLS. As you go through the active listings you can start to filter through the properties you are very interested in, possibly interested in, or do not want to consider at all. It is extremely helpful to go through the list ahead and delete those that are not to be considered.

I’ve been out on tours before with folks who have not done this process and it is challenging for a few different reasons. We end up either seeing a lot of properties and you soon cannot remember one from the other and you get the “deer in headlights” look and/or you waste the sellers time and their agents by viewing a parcel you have no desire to buy. I’ve pulled up in front of homes before and had the buyers tell me from the road they have no desire to see the home. I have to then go up and knock on the door if the seller is expecting us and cancel the showing. That is very hard on everyone involved.

It is better to take the time to preview properties first, if at all possible, so that you can screen out the listings. We all realize that sometimes this is not possible, but if it can be avoided, then it is best to avoid that type of situation. With all the technology at our fingertips today it is far easier then ever to preview a home online and know almost everything about it before you get there.

After we spend a day or two looking I find it is often fairly easy for me to tell if the buyer is ready to commit or not. I’ve spent a lot of time with some buyers who spend our whole time finding fault with every property we see. I have found that when this happens the buyers are simply either not ready to buy or have something going on in their life that they are not being realistic about. (ha ha…another way to say they are not ready!)

If you find you are doing this while home shopping you may want to stop yourself and ask yourself if you are “truly” ready to buy a property.

When buyers are ready, they usually spend a lot of time at all the parcels and try to envision themselves living there. Sometimes they find “the one” and spend all their time there or they make arrangements to come back to “the one” every day or few days to re-visit it over and over.

Sometimes buyers surprise you, so you never know. I’ve been with a few buyers who I would have swore were not going to buy and the next day they call me to write an offer.

After you get done looking at the homes and find the one you want to buy it is a good thing to discuss the offer process with your Realtor. I’ve had some buyers want to take the night to think about it and discuss it before we write the offer and others want to get the offer written right away. I, myself, prefer to take the time to think about it overnight, so I understand the need to take that time.

As a Realtor I try to find out from the listing agent if there are other offers potentially coming in or if we seem to have a few hours to sleep on it. If other offers are coming in, I then counsel my client to consider getting an offer in quickly or just letting the other agent know we are coming in with an offer. Most seller’s agents welcome a multiple offer situation so they are often willing to try to counsel their sellers to hold out to see your offer. Most are also willing to keep me informed of any updates while we are waiting for my buyers to make a decision. There is always the risk of losing it however.

I’ve been in some situations where my buyers and myself feel we are being manipulated into thinking another offer is coming in when in fact it is not. This is done just to get us to write an offer and a good one at that. It is not always easy to tell if there is truth to it or not.

I counsel my client to act as though it is true and write an offer accordingly. Meaning, write an offer you will be happy with. I don’t want them to feel they have overpaid and then later regret it nor do I want them to try to be a hard bargainer and lose it and then later kick themselves because they lost it. I have them make the decision that they can live with one way or the other. I’ve seen both sides of the coin and it is not pretty to witness. It is far nicer to see a buyer get a home they really, really want, even if they have to pay a bit more then they had hoped for but not so much that they feel “stuck”. I really hate to see a buyer refuse to budge on their bargain price and then lose it to another buyer who felt there was value there and then the buyer spends many years wishing about what they could have had and lost.


Part of your buying process should be asking your Realtor for a list of all the most recent sales in your area. It is often amazing to find that there is a large discrepancy between asking prices and ultimate sales prices. Also, if you go to different states or areas you will find that buying practices in one area may be different then another area.

When I bought a parcel in New York I asked for all the sales comps and could see that the sales prices were within about 5% to 2% from the asking price. In Southern Utah, at the time, the difference was about 20%. So I knew if I wanted to be successful I needed to conform to the general buying practices of the area.

Your Realtor should have the ability to access all the sales comps in the area you are shopping in. I am not sure about the rules and laws of all the states but in Southern Utah at least this is true. Don’t be afraid to ask.

Visit my website for more information: www.zioncanyonrealestate.com

Types of Loans for a Home Mortgage

John Staples, Loan Officer for Patriot Home Mortgage, has put together some great information on the different types of loans available including the requirements. This is a good, basic introduction.

More information on how to contact John Staples is listed below.

Conventional Loans 

• Minimum FICO of 620 (If loan requires PMI, 680-700 FICO will be required) 
• Debt Ratios of 28/36, must have AUS approval 
• As low as 3% down payment 
• Private Mortgage Insurance (PMI) required for LTV greater than 80% 

FHA Loans 

• Minimum FICO requirement: 580 (620 for most lenders) 
• Down payment as low as 3.5%
• Up Front Mortgage Insurance Premium (UFMIP) is 1.75% 
• Annual mortgage insurance as high as 1.35% 
• Debt Ratios of 31/43 

VA Loans 

• Minimum credit score not imposed by VA but most lenders require 620
• Max Loan amount based on county limits and borrower eligibility 
• 100% financing available if veteran has sufficient entitlement 
• VA Funding Fee (can be financed into loan) 
    o 2.15% First use for Veteran 
    o 2.4% First use for qualifying Reservist 
    o 3.3% subsequent use 

USDA/ Rural Development Loans 

• Areas in Southern Utah include: Parts of Ivins, La Verkin, Toquerville, and Hurricane (Hurricane and Cedar City will be removed on Oct. 1, 2013) 
• Minimum FICO requirement: 640 
• No down payment required
• Debt ratios limited to 37/47, must have GUS approval 
   o County Income limits: http://www.rurdev.usda.gov/HSF-Guar_Income_Limits.html
   o Geographic Eligibility: http://eligibility.sc.egov.usda.gov/eligibility/welcomeAction.do

Maximum financing: The maximum USDA Rural Development Loan amount is 102% of the appraised value of the home (100% plus the 2% USDA RD Loan guarantee fee). 

For more information or to contact John Staples:

John Staples | Loan Officer

Patriot Home Mortgage

Direct: (435) 215-1324

Office: (435) 256-8813

Email: john (at) patriothomemortgage (dot) com

Marcia's Input

This is some really great info on the types of loans available out there. The basics anyways.  It is certainly beyond the scope of this blog to go into information like ARM Loans, Balloons etc., so I am not going to go there. If you maintain an interest in some of these alternative loans, then I will recommend you talk with a lender about them.

I will give a plug here for John Staples at Patriot Home Mortgage. He went out of his way to get me this information for the blog. I really appreciate that!! He has done a bang up job for a few of my clients recently. He was able to procure loans for their home purchases in a very quick turn around. He kept up with me and my clients throughout the whole process and we got the loans closed very quickly. Great job!

As a Realtor, I am supposed to give out the names and numbers of a different lenders. If you want to get a list of the lenders some of my clients have used in the past that have received great results, then feel free to email, text or call me and I will furnish you with a list of their names and numbers.

How to Get a Home or Property Loan

Where do I get my loan?

That is a great first question.  There are so many options out there.  Most Realtors have found at least a few great lenders that they like to recommend. The best lenders are those that help their clients get into good loans with great rates and do their best to get that loan with little to no problems as well as quickly.

How to find a good Lender

It is generally a good idea to talk with at least three different lenders to see what rates and fees they can offer you. I’d also find out which loans they may recommend for your personal financial situation. 

Have a good conversation with the various lenders. Through this process you are likely to find one that will work well with you. It is really important that the lender be able to listen to your needs and that they can be with you every step of the way through the process.

Why I suggest Mortgage Brokers

When I discuss lenders with my clients I often give them the name of a couple of lenders that are loan brokers.

Mortgage Brokers can generally broker a loan from a number of sources.  This is one of the biggest advantages to using a mortgage broker. They can listen to your financial picture and help you find a loan that will fit your needs. 

One of my clients was able to get better rates and fees from a major national bank through the loan broker I recommended compared to the mortgage officer who came from the same bank.  

The one drawback I have experienced from a mortgage broker, however, is finding a loan for a challenging property.

When to go to a Local Bank or Credit Union

When I am trying to get a buyer into a property that has loan issues, whether it is a lot, a modular or manufactured, or in a niche area with appraisal issues, I will strongly urge my client to talk with one of the local, community banks or credit unions. 

The local banks and credit unions are in a much better position to understand the various local markets and the appraisals that come out of those areas with comps that are not standard. Local banks generally have a vested interest in helping fund local projects and homes. Some of the local banks do not sell the loans but service them in house.

When to go to a Major Bank

The third category of popular lending options are the major banking institutions such as Bank of America, Wells Fargo, Chase Manhattan etc.  

These banks are large conglomerates with multitudes of personnel and departments in separate areas all over the country. They may have the ability to offer better rates or fees then some of the other institutions. I have worked with some of these “in house” lenders and have found for the most part they do fine as long as the property is a standard home with relatively few issues. If your credit is A grade the loan goes through generally very quickly and smoothly. 

The biggest problem I have seen with some of these larger conglomerates is the lack of really great customer service. If you don’t care about someone really helping you understand the loan your getting or the process you are going through then it may be a good financial move to get a quote from one of these lenders as well.

Timing for a Loan 

At this point in our market it is a great idea to talk with your lender about timing for a loan closing on the home you want. For instance, Bank of America was requiring 60 days for a home I just worked on with a gal. The lender we used could have gotten the loan done in less then 30 days if the seller wasn’t using Bank of America as well.

Cogs in the Wheel

The following is how my experiences have left me feeling about the various lending institutions I have dealt with over the years. Picture a machine with cogs in the wheel.

• Mortgage Brokers usually seem to have their wheels greased and on caffeine! Who cares how many cogs they have. They are bright, happy and running for you.

• Community banks have few cogs and seem to go at a fairly good pace. Pretty steady humming. They can do a good job and if a hiccup occurs they seem to roll with it pretty well as they all communicate with each other.

• Large Banks have many cogs and the cogs don’t always work together. Or the one cog doesn’t always know what the other cogs are doing and they run against each other. If you get squished in between the cogs no one notices. The machine just keeps running. No one really knows who is in charge of the wheel. Seems like it just runs by itself. But if you can get in while it’s running smoothly, they can crank a lot of stuff out. They just don’t take hiccups in the machine very well. 

Your experience may be different and you can certainly dialog with me about it but after 12 years of working with all the various lenders I have seen a fairly similar pattern in the various lenders I have worked with.

Next Week: We will explore different types of loans. We don’t want to tire you out too soon!

Financing Issues in Buying a Property

1.    Buyer qualifications

2.    Buyer needs

3.    Property classification

4.    Location of Property

5.    Type of lender used

6.    Type of loan required/desired

7.    Appraisal issues

As you begin to think about placing an offer on a potential property, the fact of financing comes up. How will you ultimately pay for your purchase? Do you have the available cash for the down payment, closing costs and the inspections and appraisals? Do you want to use all cash for your purchase? Can you re-finance an existing property to pay for your new purchase? Do you need to get a loan? What kinds of loans are out there? Which loan will fit your needs best? Where do I start and which option is best for me?

Choosing a Lender

These are just a few of the questions you may ask during the lending process. There are just as many when it comes to choosing who your lender will be and many things to consider while making your choice. To start with, it is often a great idea to get some referrals from your Realtor and then discuss your needs with at least three lenders to get an idea of which one may have the best deal for you.

I often recommend my clients look at a variety of lenders and banks depending upon their situation and the property they are looking at. Some banks are simply a better fit for one property over another. Banks lend differently on a standard “stick built” home versus a modular or manufactured home. Improved lots are a bit harder to lend on and many banks will not lend on them unless a construction loan is being sought after. Raw land (meaning no utilities stubbed to it) is very difficult, if not impossible to lend on. In the cases where the property is going to have a difficult time with a conventional loan, I often recommend to the seller, as well as the buyer, to consider seller financing. Seller financing can be a very streamlined loan and can be very beneficial to both parties if the terms are good.

Why Location Matters for Lending

In addition to the  “type” of property you are looking at, we need to look at location as well. Some locations are simply easier to lend on over others. The lending process requires an appraisal. An appraisal is an opinion of value for the day written by a trained professional appraiser. The appraiser has very rigid guidelines he/she has to follow while putting the appraisal together. We will go into a little more depth on the appraisal process in a separate section. For now we will just concentrate on how the location can affect the appraisal process.

Niche Markets

One of my areas of expertise is the Springdale, Utah, market. Springdale is a very unique market. It is highly desire-able and only has a handful of properties available. As we know from economics, demand and supply drive pricing. High demand, low supply drives pricing up. The appraisers goal is to find at least three similar sales in the past 6 months to a year. In a small niche market like Springdale, that is often very difficult. The appraiser is left with possibly three sales in the past year but the sales are not similar. The appraiser then has to do a lot of justifying dialog in his/her appraisal. I have seen banks outright reject the appraisal and deny the loan because they don’t want to base their loan off of an appraisal that is too far from “standard”. In these cases I often recommend talking with a local bank instead of a large national chain bank or a loan broker. Local banks and credit unions will know the niche market and understand the difficulties of the appraisal process there.

So far we know we have to consider:

a.    Buyers qualifications, abilities and personal needs in choosing a lender and a loan.

b.    Type or classification of property we are trying to purchase.

c.    Location of the property in terms of available comparisons.

We also need to consider the lender we use. Does our lender work for a national or statewide bank? A local bank or credit union? Or is our lender a loan broker? Is our lender licensed to do business in the area of the property? Is our lender qualified? Can we work well with our lender?

Interview your Lender

All good questions to consider. Beyond these questions we should interview our lender to see if he/she can work well with us throughout the buying process. You want to have a lender who can help guide you with the dates in your contract and actually help you meet those dates. Can your lender help you get the right loan for your needs? Good interest rates? Discount points? Closing costs for the loan? All of these questions should be considered when shopping for a loan.

If you have a CPA or a tax accountant it would also be wise to discuss your lending options with this person as well. They are getting paid to help you use your money wisely and they can be an invaluable part of your purchasing process.

Next week… we will ponder a bit more on differences in lending institutions and types of loans to look at.