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Underwater Mortgages and Property Appraisals for Refinancing

[May 29, 2009.]


Because of declining home values 21.9% of U.S. homeowners were underwater on their mortgages in the first quarter of 2009, according to Zillow, an online real estate service. Being underwater is when a homeowner owes more on a mortgage than his house is worth. People in this situation will have a tough time getting homes appraised high enough to qualify for refinancing.

What’s in the Appraisal?

Property appraisals give a report on the condition of a home and neighborhood. The report also looks at comparable homes in the area to see prices of those that recently sold and how long it took to sell those properties. Those comparisons are relevant whether the deal is for mortgage refinancing or purchasing a new home.

Mortgage lenders use property appraisals when deciding how much money to lend to borrowers, or whether to lend at all. Appraisers are usually chosen by the mortgage lender, but in some cases homeowners may be allowed to choose one. Whoever does the job should be an independent third party who is not connected to the actual housing transaction.

Mortgage Refinancing in Trouble

When an appraisal comes in lower than the amount of the requested loan, the mortgage lender will either deny the mortgage or offer a smaller loan. In some cases, the borrower may have the option of making a down payment to make up the difference in the price. But many people don’t have enough cash for this kind of down payment and see their refinancing deals fall through.

So is there anything people who are underwater on their mortgages can do to get approved for refinancing if they’ve been denied loans? In many cases refinancing just won’t be an option in this economy. But there are a few things people can try:

  • Request a copy of the appraisal report and make sure it includes a thorough comparative market analysis (CMA) of recent property sales and listings in their neighborhood.

  • Hire another appraiser to give a second opinion on their property if they feel that significant features were overlooked during the appraisal.

  • See if they qualify for the government’s Making Home Affordable refinance program if they have a first mortgage that isn’t more than 105% of the value of their home.

Homeowners looking for mortgage refinancing can start here.


About Author:

Francine L. Huff is a freelance journalist and the author of The 25-Day Money Makeover for Women. She has appeared on a variety of TV and radio shows.

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