Q.I recently canceled a refinance because my appraisal came in under what I think my property is worth. I purchased my home three years ago for $255,000. While the value may not have increased, I don’t think it has dropped because homes in my neighborhood are selling for around $250,000.
I made an application for a 30-year fixed-rate loan of 5.25 percent with no points or closing costs. I put down the required deposit of $350 for the appraisal, which was to be refunded at settlement. The appraisal came in at $235,000, which put my loan-to-value ratio at 83 percent and jacked up my interest rate. This also required me to pay private mortgage insurance (PMI).
I told the loan officer that I was no longer interested in refinancing. He suggested that I pay down the loan by $7,000 to reach the 80 percent level to obtain a 5.25 percent rate and eliminate the PMI. I refused and now I am out $350 and have a bogus appraisal report.
I think the lender is low-balling the home’s value on purpose. Has this practice become more prevalent?
A. Actually, the new laws enacted last May make it impossible for lenders to have any influence over appraisal reports. The Home Valuation Code of Conduct (HVCC) prohibits banks, lenders and mortgage brokers from ordering appraisals. All appraisers are chosen through an independent portal system.
While the purpose of the HVCC is to prevent lenders from influencing appraisers, the consensus is that the new laws are causing far more damage than good. Lenders, real estate agents and homeowners are complaining that appraisers are being assigned to homes in areas where they have little knowledge of the local market, causing appraisal reports to be inaccurate.
So, your assertion that the lender caused your appraisal report to be low is incorrect. You are among thousands of potential borrowers who are upset with their appraisal reports. Until the government repeals the HVCC, consumers and lenders will have a higher probability of receiving inaccurate appraisal reports.
Either way, I think you should contact your loan officer and proceed with the refinance. Assuming you cannot obtain an appraisal with a higher value, it’s certainly worth $7,000 to pay down your mortgage debt in order to reduce your rate by one full percentage point.
Remember that you are not paying $7,000 to refinance. You are investing $7,000 in your home to reduce your mortgage debt. The reduction in the loan amount allows you to lower your rate by 1 percent, saving $2,000 in interest each year. Where else can you invest $7,000 and earn $2,000 annually? That’s an annual return of more than 28 percent.
I doubt if you will be able to alter the appraised value of your home. We’ll have to wait and see how the cards fall.
Henry Savage is president of PMC Mortgage in Alexandria. Reach him at henrysavage@pmcmortgage.com.
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