Appraisal, and Other Hurdles

In my last post, I mentioned that we would be considering our home mortgage through a different lender because the first lender we spoke to had sprung additional costs and restrictions on us nearly 45 days into the process. Well, there is news.

First, after speaking with the second lender on the phone, explaining the situation (including the fact that our bankruptcy would mature to two years on August 4), and providing the necessary information for the credit reports to be run, I heard nothing back from the lender. I made several attempts to call this lender (and because my goal here is to help others going through bankruptcy, I'll share with you here that this secondary lender was Fifth Third Bank), with no response. Finally, I called a toll free home mortgage hotline they list on their website and learned that 5/3 Bank uses only an automated underwriting system, which would automatically reject our application if we apply before the bankruptcy is two years old. Which put that idea on the back burner for another few weeks.

Second, the lender we've been working with contacted me about having an appraiser come out to the house to assess it's value, and he was willing to do so without having yet received the application fee, so I agreed. The appraiser came out on Friday morning and was here for less than half an hour. He took some pictures -- inside and out -- and asked some questions, then left. There were two things he was asked to determine, and I got the news early Friday afternoon.

1. The value of the home was appraised at $6000 less than the agreed upon sale price in our purchase contract.
2. The fair market rent of the house was assessed at $100 per month less than we have been paying for the past nineteen months.

An FHA loan, which is what we applied for, limits the loan amount to 96.5% of the lower of the appraisal value or the purchase price. This means we would have to come up with a significantly larger down payment than initially planned.

Because the underwriter will only accept that portion of the rent paid that is over the fair market rent to be applied toward the down payment, the high fair market rent effectively eliminates $3000 of our rent credit from being allowed toward the down payment -- further increasing the actual amount of money we would have to raise for the down payment.

I have contacted the seller to discuss adjusting the purchase price and other methods that the rent credit can be used toward down payment -- such as rebating the rent credit to us in cash so that we can apply it as a cash down payment rather than a rent credit. I will also be speaking with the lender this week about using my VA loan eligibility instead of FHA, which has fewer restrictions than the FHA loan.

Of course, the process just cannot be simple. It seems that we've done everything over the past twelve months to prove that we can afford the home (including paying a monthly rent ON TIME every month that is greater than our monthly mortgage payment would be), and new hurdles keep popping up in our path.

I hope to get something figured out in the coming week and get this process behind me and start our life as Homeowners. Stay tuned...