In some real estate markets, the close-in DC Metro area being one of them, the market is strong enough that sellers will not accept an offer contingent on the sale of the potential buyers current home. Sellers figure in a strong market, why should they accept an offer based on a buyer that has a house to sell, and who knows if the buyers are realistic, will price it to sell, and will do all the right things to market and sell it quickly. So sellers wait to get a non-contingent offer, because they know one will come along soon enough.

As a result, I get some buyers who ask me to get them qualified to buy a new home, without the new loan being contingent on the sale of the current home they own. I get asked if bridge loans exist so that they can get the equity out of their current home to use as a down payment on the new home they want. A bridge loan is a loan made based on the equity in the current property owned, that will give the buyer the cash to buy a new home without selling it. I don’t know anyone doing bridge loans anymore, but you can possibly get a home equity line on your current home. But there are two problems with that:

1. Banks lending money for home equity loans want to know you plan to stay in the property, and that you will use the money for renovations, investment, etc. If you said you were going to sell the home soon, and only wanted the money temporarily, they would know they were being used as a bridge loan, and would deny the loan. It takes a lot of effort and money to originate, process and setup a new loan. So to have it paid off in a few months, as a bridge loan would be, is of no use to a bank. There is no profit in offering short term financing. And if you chose not to tell a bank you were applying for a home equity line at that you were moving out, they may find out anyway, if your property was on the market for sale, for example. All underwriters have access to the local Multiple List systems and will check to see if a property is on the market for sale.

2. If you manage to obtain a home equity line, it is fairly rare to find that a potential buyer can carry all that debt. There is the mortgage on the current property, the equity line on the current property, and then the mortgage on the new property. You would have to qualify carrying all that debt, as well as any other debt (car loans, school loans, credit cards, etc.); and not many people can.

So unless you have a substantial income and can carry all the above referenced debt, it is hard to make a non-contingent offer, because bridge loans do not exist, and home equity lines are hard to get when you are moving out of your current home, and its hard to qualify carrying all that debt.

The next option is to double move. This means sell your current home, move into temporary housing, then find a new home. With your home sold you would have already realized your cash gain and can make a non-contingent offer. Of course, many potential buyers push back on this idea because no one likes to move twice, once to short-term housing, and once again to the new house you eventually find.

But there are no other options usually, unless you have a rich Uncle that can pay cash for a new property for you, and you can pay him back when you sell your old house, and then put a mortgage against the new house. When in a strong real estate market, which I realize are rare in this country currently, you will find yourself possibly having a difficult time if you still have a home to sell.

Santa versus The Grinch represents so many different scenarios in life, good versus evil, positive versus negative, tortoise versus the hare…..an on time mortgage transaction versus a delayed one. Huh? Wait. What does Santa and The Grinch have to do with the mortgage process?

Since its the holiday season, I thought I'd use Santa and The Grinch to demonstrate how a mortgage transaction can go astray, or how it can happen smoothly and on time. It is not only up to the mortgage lender, it is up to every single party to the transaction to participate. Here is an idea of what I am talking about:

Making Loan Application:
The Grinch is too busy, self important, and urgently doing other Grinchy things. He will have to wait 3-5 days to fill out his loan application, plus he needs a few days off for a preplanned vacation.

Santa would drop everything, and be aware that he is under contract with a large deposit at risk, and the day his offer was accepted would complete his loan application at a pace quite brisk. This way he would ensure he would not be the reason for delay, not by one day, not in any way.

Returning the loan disclosures:
The Grinch thinks the loan disclosures are cumbersome, lengthy, and take too much time to review. He'll do it when he can, and that will have to do.

Santa would sign everything right away, realizing the appraisal cannot be ordered until the disclosures are returned. In this transaction he will not be the reason that anyone gets burned.

Sending in the supporting documents:
The Grinch thinks all this paperwork is unnecessary and absurd; he likes to make his own rules while flipping the underwriter the bird. He sends in bank statements with missing pages, illegible pay stubs, and sends it all in stages.

Santa understands the economy is tough and the rules are severe. He will send in W2's, bank statements and pay stubs, and will send them in on flying reindeer. All the documents are legible and complete, in one package, bound together quite neat.

Appraisal inspection:
The Grinchy listing agent is busy, important and has no time.

But the Santa listing agent would meet the appraiser at the drop of a dime.

I think you get the rest…

The bottom line is that when you wait 3 days to make loan application because you are too busy, and you wait 4 days to return your loan disclosures, and wait 2 more days to send in complete supporting documents; you do not get to be upset with anyone that settlement will be delayed by a day. I know of countless loan transactions where Grinch's want lender's to perform miracles and work faster, because they went slower.

If you engage in an important transaction like a home purchase, then be just that, engaged. It needs to be a priority, you need to put it first, you need to be responsible and take it seriously. Otherwise, when the day before settlement arrives who should be considered The Grinch when you are told your settlement will be delayed, the movers must be rescheduled, you must put your belongings in storage because the people that bought your home are still moving in your place on time, you must call the utility companies and reschedule those, and on and on. Is The Grinch the lender, or is The Grinch in the mirror?

There was some confusion as to how long the latest FHA loan limit increase is going to last, which I blogged about here. Was it through the end of 2011, or 2 full years through 2013, or just through next year and it ends 2012? So the verdict is in, and the latest FHA loan limit increase expires at the end of 2012. So come December 2012, there will be another political fight, and another decision to temporarily fix something.

The official language from FHA is below:

"For FHA mortgages with case numbers assigned on or after November 18, 2011 through December 31, 2012:
The FHA Floor and Ceiling loan limits will remain the same as those that were in effect from January 1, 2011 through September 30, 2011, as announced in ML 10-40."

The loan limits in affect January 1 2011 through September 30, 2011 was as high as $729,750 for high cost areas, so this is what remains in affect until the end of 2012, not through 2013.

It seems all our political decisions these days are temporary, whether related to spending, tax cuts, political appointments, loan limits, entitlement reform, health care, etc. I am not sure how the geniuses at the top of our government expect individuals, families and businesses to make long range decisions and plans when every decision is a short term one. But maybe they know something that I do not….

So get it while its hot, FHA loans up to $729,750 through December 2012, hurry, hurry, hurry!

I had a file come out of the underwriting department recently, and learned something new…apparently windows need to be operable and open. Sounds silly huh? But operable windows are important due to safety reasons and ingress/egress to get out of the house in an emergency. You want to hear more? OK, read on.

The only reason the underwriter found out about this is that the seller listed these inoperable windows on the "sellers disclosures", which is the part of the contact where the seller has to disclose any negatives they know about their property. This did not come up on the appraisal, where you would think it would. And this was not an FHA loan, because FHA appraisers are supposed to check and make sure every window is operable. This was a Conventional loan, and Conventional appraisers do not have to check for operation of windows. So this issue came up late, in the underwriting of the loan, not early on during the appraisal (by the way, this is the type of issue that would not be be scrutinized so hard if it were not for the current financial and lending environment).

The underwriter was concerned because windows that are painted shut, or in one case a window was nailed shut; means it is difficult to impossible to use them if needed to exit in an emergency. However, the sellers of the house wanted to keep people out! The nailed shut window was on a ground level, and people could potentially climb in if the window lock broke, so the owner nailed it shut. This was a house in an urban area, and people think more about keeping bad elements out instead of getting out of the house in case of emergency.

The windows had to be repaired and unstuck., in order to get final loan approval. It was interesting news, to say the least, to deliver; "I am sorry, we cannot approve your loan and you cannot go to settlement until a contractor comes out and unsticks a few windows." It sounds absurd, but its real, and it might happen to you.

When you have any sort of income that varies, such as overtime, bonuses, commission, self-employment, etc; you need a two year history of that income. This way, when you have a two year history, the underwriter can determine an average income. For example:

if you earned a $40,000 bonus in 2009, and a $80,000 bonus in 2010, and in 2011 you apply for a mortgage, they will average those two years of bonus history together and credit you with a $60,000 a year bonus average.

If you are self employed, and earned a net income (after write-offs and business expenses) of $80,000 in 2009 and then $100,000 in 2010, you'll be credited with $90,000 when qualifying for a mortgage.

And they may have you average in the current year's income, taking the example above:
$80,000 in 2009.
$100,000 in 2010.
$60,000 through end of June 2011.
In the above example, you'll be credited with $96,000 when qualifying for a mortgage. Here is how the math works:

$80,000 over 12 months of 2009
$100,000 over 12 months of 2010
$60,000 over 6 months of 2011
=$240,000 over 30 months
=$8,000 a month in income
=$96,000 a year average over that whole time frame.

And the bad news, if you had a bonus in 2009 of $30,000; but got no bonus in 2010; then you will not be credited with any bonus income towards qualifying for a mortgage.

If you had no bonus in 2009, but in 2010 got a $30,000 bonus, and have not earned a 2011 bonus yet; then you will not be credited with any bonus income towards qualifying for a mortgage.

Until you have received and can document two full years of variable income, then you will not be able to count any of that income towards qualifying for a mortgage.

Not only do you have to have a two year history of variable income, but you also have to be able to show that the continuance of such income is likely to continue. For bonuses and overtime, this can be done with a letter from your employer. If you are self-employed, this would simply be proven by looking at your business tax returns and seeing a viable business, hopefully with growing gross income, as well as net income.

I came across an article I just had to re-post. We all know about the problems in the mortgage industry with people who are qualified but end up getting hassled, questioned, asked for piles of paperwork, or worse, they get their loan application rejected. Below is an article I found on Reason.com, which is exactly how I'd want to see a loan application from Congress for a mortgage get rejected:

"Dear Congress,

Thank you for your interest in the American Public Trust's Gold Card credit program. Rest assured your application has been given thorough and careful consideration by the American people.

After reviewing the information provided in your application as well as your credit report, we regret to say that we are unable to extend you further credit at this time. The reasons for our decision are as follows:

(1) Inadequate income. Our records indicate that your annual income for the 2011 taxable year was $2,170,000,000,000. You have requested a credit limit of $17,000,000,000,000. These figures exceed the American Public's debt-to-income guidelines for credit issuance.

(2) Excessive spending. The receipts you provided indicate your annual expenditures for the 2011 fiscal year total $3,820,000,000,000, or $1,650,000,000,000 more than your total income for the year. The American Public prefers that its members of Congress maintain a positive or neutral rather than a negative cash flow.

(3) High debt utilization. Your credit report indicates that you have a credit limit of $14,300,000,000,000, and of that amount you have utilized $14,300,000,000,000, for a debt utilization ratio of 100 percent. Consumer banking industry guidelines recommend a debt utilization ratio of no greater than 30 percent for standard creditworthiness, and 10 percent for exemplary creditworthiness. A debt utilization rate of 100 percent meets our classification of "You're *&^%$#@! kidding, right?"

(4) High credit activity. Our records indicate you have credit accounts open with the Federal Reserve Bank of the United States, the Social Security Administration, the People's Bank of China, the Bank of Japan, the European Central Bank, the Bank of the Republic of Burundi, Bank Frick & Co. AG Liechtensteiner Privatbank, Quik-Cash Loans, Three Gold Balls Pawn Shop (Ann Arbor, Mich.), MyFast Loan.com (Antigua), paydayloans-r-us.com (Cayman Islands), Frank the bartender (Old Towne Tavern), and several members of the extended family of Salvatore "Sammy Meatballs" Montigliano of Montclair, N.J. While account activity threshholds vary by lender, your activity exceeds American Public guidelines for further credit issuance.

(5) Multiple recent credit inquiries. Records indicate your credit report has been accessed more than 6,437 times in the past 60 days. Inquiries may be triggered by applications for credit, employment or both and represent one factor in determining an applicant's loan risk to a credit issuer. The Fair Credit Reporting Act (FCRA), as amended, requires businesses to have legitimate grounds for requesting your credit history. If you feel your credit information is inaccurate or has been accessed for unacceptable reasons, you may wish to contact the Federal Trade Commission.

(6) Multiple account charge-offs. Balances left unpaid for more than sixty (60) days may affect your creditworthiness. Your credit report indicates unpaid balances from Operation Iraqi Freedom (Iraq); Operation Enduring Freedom (Afghanistan); the Troubled Asset Relief Program; the American Recovery and Reinvestment Act; the Children's Health Insurance Program Reauthorization Act; the Cash for Clunkers Extension Act; the Worker, Homeowner, and Business Assistance Act of 2009; the Healthy, Hunger-Free Kids Act of 2010; and others too numerous to list.

Member of Congress, please understand that the American people's decision was based on information obtained from a report from one of the following three consumer credit reporting agencies: Equifax, Experian, or Trans- Union. The reporting agency did not make the credit decision.

You have the right under the amended Fair Credit Reporting Act to request a free copy of your credit report once each calendar year from each of the three major credit reporting agencies listed above. You can order your report from annualcreditreport.com or the Annual Credit Report Request Service, P.O. Box 105281, Atlanta, GA 30348-5281.

You may also wish to contact a consumer credit counseling agency. The National Foundation for Credit Counseling can help you locate a reputable counseling agency in your area. You may also wish to visit the NFCC's website for helpful tips on such subjects as

•drawing up a budget
•living within your means
•saving during tough economic times
•steps to take when your finances get out of control

In the event that you can provide documentation of changes to your credit status, we will be happy to evaluate another application for credit from you at that time. We hope to have the opportunity to meet your credit needs in the future.

If you have any questions, please feel free to contact the American people during regular business hours. Please do not contact us at home. If you call us after 9 p.m. and wake the baby, there will be hell to pay.

Sincerely yours,

We the People."

Now that is good humor! I usually write my own stuff. This is probably my first re-post. But it was too good to pass up. Taking a jab at the entities that have been taking a jab at us for the last 3 years or more, is a lot of fun. The government, who now runs the show at Fannie Mae, Freddie Mac, and FHA, should read this and take heed.

The way that a mortgage lender is structured is critical in the current mortgage environment. One structure that is getting a lot of attention is direct lenders (aka mortgage bankers). What that means is that the lender is allowed to do the appraisal in-house, the underwriting in-house, preparation of the closing documents, etc. You could say they operate as if they were the bank. Further, some lenders connect as a direct lender with numerous banks, such as Wells Fargo, Bank of America, Chase, BB&T, SunTrust, etc. The list can go on and on. This allows a direct lender to be able to operate as a mortgage broker and shop the loan and provide the best terms, but still retain control of the transaction, which is critical as the transaction becomes more and more complicated.

However, unlike a mortgage broker, who does not do much of the paperwork in-house and sends most of the file to the lender that they are brokering the loan to, a direct lender controls the whole process from start to finish. Why this is important, is that when you go to a big bank directly, or if you go to a mortgage broker who sends the loan to a big bank, then you will suffer from big bank loan processing, big bank underwriting, and most importantly big bank appraising. At a big bank they may send out one of hundreds and hundreds of appraisers that come from great distances and do not know properties in the local market, and the inevitable result is a lowball appraisal that kills the whole deal. A direct lender can use their own appraisal management company, which is only populated with a much smaller number of local, experienced, market knowledgeable appraisers.

It is important to know that some mortgage brokers have what are called "mini-correspondent" deals with some lenders, that allow them to mostly act as a direct lender. This allows them to use their own Appraisal Management Company and ensure that local appraisers are used, which is the most critical part of being a direct lender.

Some listing agents will not even accept an offer from somebody using a big bank or a mortgage broker, due to the high possibility of getting a bad appraiser. This is how bad the industry has gotten. For more on this appraisal issue, read any or all of the below:

Appraisal News: Home Valuation Code of Conduct.

Buying A Home In Falls Church VA, And The Appraiser Comes From Cumberland MD??

Ask About The Appraiser, Or Get Screwed!

The important thing to you as a consumer is that a direct lender with multiple sources still allows them to shop for the best rate for the consumer, but more importantly the direct lender will control the process from start to finish to deliver on time, efficiently, and with no hassles; which the industry is infamous for right now.

The reality is that in different eras there have been different structures of mortgage lending that have dominated. When I got in the mortgage business in 1986 mortgage bankers (i.e. direct lenders) were the best place to get a loan. Then in the early 1990s through much of the 1990s, big banks ruled the day, and they were the best source to get a loan from, for different reasons. Then in the boom market of the early to mid 2000's, mortgage brokers took the largest percentage of market share of all lender types. Anybody could get a loan through, mortgage brokers were able to shop extensive sources, and the loans flowed easily. In 2008 all that changed, and the rules, compliance, appraisal changes, and all around complexity of the transaction have now dictated that mortgage bankers (i.e. direct lenders) are the best source for a loan.

Remember in the real estate boom, lenders would commonly make you a loan with a 1st and 2nd trust combined, to avoid PMI? You could put 5% down or 10% down and still avoid PMI. These loans were called 80-10-10, 80-15-5, 75-15-10, even an 80-20 where you got an 80% 1st trust and a 20% 2nd trust, and put no money down! Imagine my surprise when some of these loans started to resurface recently.

My first thought was, "what lenders are stupid enough to lend 2nd trust money these days?!" Lenders lost a lot of money making these loans in the real estate boom, and are still suffering losses from them. When you are a second trust lender, you are in junior lien position, and you will get your money last, if it all, if the loan goes bad you lose most or all your money as a 2nd trust lender. "What fools are making these loans in 2011?" I wondered.

Then I started to take a more thoughtful approach when I realized that some consumers were actually being sucked into these again. Don't get me wrong, back in the real estate boom they were great and were very useful in helping to save clients money. But for a lender to offer these today, in an environment when banks are running away from risk faster than former Congressman Anthony Weiner runs away from a reporter, is astonishing. I realized that there must be some gimmick behind it, and that the lenders that were making these loans were doing it to increase sales, not necessarily help the consumer. And I was right.

Private mortgage insurance is unfortunately a necessity. Without a 20% down payment, you would not get a Conventional loan without PMI. But who likes to spend extra money every month? Isn't PMI a waste? No, not if you want a loan to buy a home. The only alternative would be to do an FHA loan, where the mortgage insurance is anywhere from 2 to 2.5 times as expensive as on a similar Conventional loan. So PMI for people that have less than 20% down payment is a necessity. Or is it?

I had a client who wanted to buy a $558,000 home, and make a 10% down payment. They had gotten a marketing mailer (do people actually open those anymore?) which was advertising a way to put only 10% down and avoid PMI, such as a 75-15-10 loan or an 80-10-10 loan. Below was my reply to the client:

"I finally got all the responses needed to identify the reality of all your choices, and what might be good, and what might be bad. Here are your options using a $558,000 sales price:

option #1
pay the PMI
$558,000 sales price
$502,200 loan a mount
4.625% rate, 30 Year Fixed
$2582/month mortgage payment
$205/month in PMI
$2787/month total (excluding taxes and insurance)
PMI solution: Do a PMI drop in 2-3 years. But, there are lower costs the longer you are in the home due to this PMI drop, versus carrying a permanent high rate 2nd trust. Keep in mind the $2582 month mortgage payment once the PMI is dropped will be the lowest of all three choices.

option #2
75-15-10 (PNC terms of 2nd trust, 20 year fixed rate 6.5%)
$558,000 sales price
$417,000 1st trust, 4.375%, 30 Fixed
$85,200 2nd trust
$2082/month 1st trust
$635/month, 2nd trust
$0/month PMI
$2717/month total (excluding taxes and insurance)
PMI solution: no PMI up front, but higher costs the longer in home.

option #3
90% "single premium" loan, PMI is built into interest rate.
$558,000 sales price
$502,200 loan a mount
4.875% rate, 30 Year Fixed
$2657/month mortgage payment
$0/month in PMI
$2657/month total (excluding taxes and insurance)
PMI solution: no PMI up front, lower monthly costs than all. But PMI drop still potentially lower costs if you are in the house for the long haul.

Check in with any questions, and let me know what you think. As you can see, the differences are not major, and there is no magic bullet to avoiding PMI. And there is actually one option cheaper! Talk to you soon."

My clients ended up taking the loan with PMI, and are confident they'll be doing a "PMI drop" to get rid of PMI in 2-3 years.

In doing my research, I realized the handful of lenders that are now offering these first trust and second trust combo loans, are offering the second trust at a much shorter term, like the above 20 year fixed rate. Some of them are offering the second trust on an interest only basis, which is like putting a giant piece of your house on a credit card where the debt never gets paid down, not to mention that the rate is adjustable and can swing wildly, and might be the most foolish thing I've ever heard of related to buying a home (click here for more on my opinion of "Interest Only" loans).

So the bottom line is that there are no good second trust alternatives to make one of these 80-10-10 loans attractive, to actually make the monthly payment lower. The second trusts offered are not fiscally safe, do not offer a lower monthly payment, and could blow up in the consumer's face. Let's call it what it is, it is a sales gimmick, trickery, a scam, something to increase sales for lenders who are trying to pull one over on the consumer. People reading this blog will not be so easily fooled.

In 2008 Congress decided the mortgage world and the economy in general were imploding, and one of the hundreds of ways they decided that they knew better than anyone else and that they would help (i.e. interfere), was to raise the maximum conforming loan limit that Fannie Mae and Freddie Mac offered for loans. They created a class of loan called "conforming-jumbo", also known as “conforming high balance." It used to be that conforming loans would go up to $417,000, as of 2008 with this new class of loan you could now borrow up to $729,750 and still get a conforming interest rate, that was only slightly higher than the conforming interest rates for loans below $417,000. Hooray. I'm sure the taxpayer did not mind being on the hook for more losses.

The geniuses in our government figured if they extended the conforming loan limit through which Fannie Mae and Freddie Mac offered loans, that this would spur on the housing market. Of course the housing market continued to decline, except for in a few strong markets, like Washington DC for example.

This creation was supposed to be temporary in 2008, and only last for a year. But the “temporary” conforming loan limit extension in high-cost areas was extended into 2009. And it was extended into 2010. And it was extended to into 2011. Now the geniuses in Congress have decided to extend this gimmick even more. But now they claim they will no longer continue to roll it over, the new rules are:

For loans that go to settlement on or before September 30, 2011, the "temporary" high-cost area loan limits will apply and will be the same as the 2010 high-cost area loan limits, up to a maximum of $729,750 for a single family home. Loans that go to settlement on or after October 1, 2011, will use the "permanent" high-cost area loan limits. The formula used to determine this is 115% of the 2010 median home price, up to a maximum of $625,500 for a single family home.

So let me make sure I have this straight. With Fannie Mae and Freddie Mac being influenced by or run by the geniuses in Congress over the last several decades, these two entities have racked up losses approaching $125 billion (to date, who knows what lies around the corner). And this was mostly for loan limits up to $417,000. For the past three years we have raised those low limits by almost 75% to $729,750. And now the answer to help reform the insanity is to drop the loan limit from $729,750 to $625,500, which is about a 14% drop. A 75% raise…then a 14% drop. I will say it again. 75% raise…14% drop.

All of the geniuses that we have populating Congress and their fancy law degrees must know something that I do not. I never knew that subsidies and giveaways help fix a marketplace, but I guess that is why I am a lowly loan officer in the mortgage industry. If I was smarter I would be a Senator or congressperson. I like the sound of it, “Senator Martucci.” I can see this happening. I like the idea. “Senator Martucci, do you take your abuse of power with milk or sugar?”

We'll see how long this “permanent” loan limit lasts. My money is on this changing again and again and again, depending on the whim of politicians. Look out below…

I have recently had a re-occurrence of an appraisal issue that keeps repeating itself. I am not sure if its part of the tightening of underwriting standards, or if it's logical. But I'd like to explain the recent issue so everyone can be aware of it. This piggybacks off of a blog that I wrote about in the past, related to a similar situation, which you can reference here.

The current situation is that I have a client who is buying a home in Maryland for $700,000. There was only one problem, the appraisal came in at $620,000. The appraiser said that the home was never exposed to the market (it was never listed for sale). The appraiser has recent, close in proximity, and comparable sales.

The Realtors and the seller claimed the home had extra value because it had a lot that was almost an acre, and they said it was a 2,000 square foot home, and that the appraiser only used 1400 square foot comps. The Realtors sent over 2,000 square foot comps. There are a few problems with this:

1. The subject property is only 1400 ft.² above grade, and was almost 700 ft.² below grade. The 700 ft.² below grade was all finished living area, but Fannie Mae, the banks, and underwriters do not count below grade square footage in the gross living area (GLA), whether it is finished or not. If square footage is wholly or partially below grade, it won't count in the square footage figures for GLA. It will count as below grade/basement/recreation room square footage.

2. Also, banks, underwriters and Fannie Mae and Freddie Mac do not give as much weight and value to an extra large lot as a Realtor or seller may. Fannie Mae and Freddie Mac would tell you that they are out to make home loans, not land loans. As a matter fact, when I do a loan on a farmhouse, that has 10 acres of land let's say, and also has a house built on it; Fannie Mae and Freddie Mac will make us back out what they call “excess land value.” In other words, they will not value the land as much as someone else might, because they are making home loans not land loans. The moral of the story is if you're going to get a loan that is backed by Fannie Mae and Freddie Mac, you have to play by their rules, and the rules say that they are lending on home value mostly, and we cannot count extra value from an extra large lot.

The Realtors and the seller in the case that I'm mentioning in this blog, say a General Contractor would pay $625,000 for the lot value alone. And Fannie Mae and Freddie Mac would tell them, please invite the general contractor over to make a purchase for $625,000, because Fannie Mae and Freddie Mac are not going to lend on a home that they want valued at $700,000 when an appraiser values the home at $620,000; just because it has an extra large lot.

It is just common sense that people want to live above grade, or so it seems since caveman times. Below grade is for storage, and playrooms. Real gross living area is above grade. This is just the way the marketplace works. And if someone would like to disagree, then they're going to have to pay cash for property that has a lot of finish below grade square footage. If you want a loan from Fannie Mae and Freddie Mac you're going to have to play by the rules.

I have said it time and time again, GLA that is below grade, no matter whether it is finished or not, cannot be counted in the total square footage. So when someone tries to compare a 2,000 square foot home that is all above grade, with the a property that may only have 1300 ft.² above grade and the rest is finished square footage below grade, there is no comparison. Not according to Fannie Mae and Freddie Mac, underwriters, and the banks anyway…