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HELOC appraisal & qualification

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sekada
Regular Contributor

HELOC appraisal & qualification

I really need to remodel my home (kitchen and a bathroom, as well as hopefully new carpet/paint inside). I have pretty high DTI because I own both my mom's home and my own.  My CC util was sky high... I recently paid off a $5k one, so it's a bit lower now, but still high.  FICO is 705. I have about $3k cash saved, but it's not enough to do what I need to do.  Add to that, my AC pump blew this week and flooded my basement... so now I will probably need to open an insurance claim to clean that up and replace basement drywall, etc. So I will be out at least $1k for the deductible, hopefully no more than that. 

 

I owe $131k on my mortgage... my tax value is listed at $179, but when I pulled the free AVM estimates, they range from there to $194k.  In my neighborhood, we have had no homes sold for almost 4 years; but in the last month, two homes were put on the market.  One was $195k and one was $225k.  Both went under contract in less than a week.  Sales haven't closed yet, but I'm assuming they got close to asking price since they were only on the market for a few days.  The $195k one is very similar to mine in both layout and interior.  The pricier one had an enclosed sunroom and they have spent a couple of years spiffying it up.  The comps haven't hit yet and probably won't for another month or so.  I'm thinking my house is worth more like $190-$200k (once I get it fixed up) but I don't know when the comps will hit.

 

My questions are: Will my high DTI/Util prevent me from getting a HELOC despite my reasonable FICO score?  And, should I wait until my basement is fixed before applying?  My basement isn't finished, but if an appraiser comes by I don't want them to freak out when they see the mess. Or do banks even send out appraisers anymore, is it all done by computer?

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6 REPLIES 6
StartingOver10
Moderator Emerita

Re: HELOC appraisal & qualification

The AVM's are all over the board. It is very difficult for an AVM to pick up a valid value if the area hasn't had a sale in 4 years. I personally have seen values way under (and over) the actual market value when using an AVM.  Yes, banks send out appraisers to see the property - take photos and measure.

 

What is your actual DTI? Front end and back end.

Message 2 of 7
sekada
Regular Contributor

Re: HELOC appraisal & qualification

DTI is 24/39.  How long should the comps take to hit AVM models, once they close in 2-3 weeks?   And do you think if they see my basement in bad condition they will under-appraise, or since I'm getting it fixed will that not affect me? (and/or does anyone use AVM or drive-by models)  Should I just wait until the basement is fixed before applying?

Message 3 of 7
StartingOver10
Moderator Emerita

Re: HELOC appraisal & qualification


@sekada wrote:

DTI is 24/39.  How long should the comps take to hit AVM models, once they close in 2-3 weeks?   And do you think if they see my basement in bad condition they will under-appraise, or since I'm getting it fixed will that not affect me? (and/or does anyone use AVM or drive-by models)  Should I just wait until the basement is fixed before applying?


The AVM's can pick them up once the sales are closed and recorded (showing in the public records). 

 

Don't be so anxious to use an automated valuation model.  I will give you a recent experience:  One of my clients applied and received a HELOC in Sept 2014 and the appraisal came in at $260k using a AVM.  It was adaquate for this seller for the time. Then this year he called me to sell the property. The neighborhood had no recent sales for nearly 3 years. I had to go outside the neighborhood to come up with a market value. We put his home on the market for $309,950 in March. It took two weeks to sell - 4 offers and we ended up at $309k. 

 

I mention this to you to show you that the lender is going to err on the side of conservative values for a HELOC or second mortgage. There probably was some growth between Sept 2014 to Mar 2015 but not the entire amount from $260k to $309k.

 

Can you fix the basement before applying?   If so, do it. Appraisers look at condition. The appraiser does not take into account any future work you are going to do unless you are getting a rehab type loan. A rehab loan will ask the appraiser to determine current value 'AS IS' and value as improved/repaired.  Have you checked with any lender on a rehab type loan?

Message 4 of 7
sekada
Regular Contributor

Re: HELOC appraisal & qualification

By rehab loan do you mean a refi-type thing?  I'm pretty in love with my 3.75 assumable rate, and I would hate to lose it.  Also, my credit was higher and DTI lower when I refi'd a few years ago... now I also have my mom's mortgage, which trashes my DTI a bit.  So I'm not sure I would qualify for the lowest rates now.

 

If there's a rehab loan that doesn't involve a full refi, I would love to know about it.  No real idea how my home would appraise in person, since it definitely could use a new kitchen/bathroom/paint/carpet; and I would still have the issue of no recent sales (until the 2 new ones post).  I also get substantial discounts thru my job, i.e. 15% off appliances & cabinetry, 25% off paint/flooring and labor, etc so it's likely I can get things fixed for less than they might calculate.

Message 5 of 7
StartingOver10
Moderator Emerita

Re: HELOC appraisal & qualification


@sekada wrote:

By rehab loan do you mean a refi-type thing?  I'm pretty in love with my 3.75 assumable rate, and I would hate to lose it.  Also, my credit was higher and DTI lower when I refi'd a few years ago... now I also have my mom's mortgage, which trashes my DTI a bit.  So I'm not sure I would qualify for the lowest rates now.

 

If there's a rehab loan that doesn't involve a full refi, I would love to know about it.  No real idea how my home would appraise in person, since it definitely could use a new kitchen/bathroom/paint/carpet; and I would still have the issue of no recent sales (until the 2 new ones post).  I also get substantial discounts thru my job, i.e. 15% off appliances & cabinetry, 25% off paint/flooring and labor, etc so it's likely I can get things fixed for less than they might calculate.


You are right - with a 3.75% assumable rate - I would keep it if I were in your shoes!

 

You don't want a rehab loan then because your rate would be higher than what you have now. A HELOC (Home Equity Line of Credit) would work for your circumstances or a regular second mortgage.

 

Look for a HELOC first.

Check the small regional banks in your area. Regional banks are very small - might cover the county or two counties, but not usually more than that. They are very loan friendly for HELOC's. Stay away from the big box banks (like Chase or Wells) for this type of loan.

Message 6 of 7
sekada
Regular Contributor

Re: HELOC appraisal & qualification

Thanks!  I guess I'll get my basement dealt with first, then look for a HELOC from a local or CU. Hoping for a small score bump from paying down $5k of CC debt, but in my experience that's very hit or miss, so I might not hit 715.

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