Home 2.0 Blog Archive

Friday, July 1, 2016


SH2.0 Pleasant Ridge Re-Appraisal

The terms of the original construction financing for the Starter Home 2.0 Pleasant Ridge project were pretty typical for a new single family home loan with an interest only construction loan rolling over to a 30-year adjustable rate mortgage (where the interest on the loan adjusts on an annual basis to reflect market conditions). Unfortunately, in today's market where interest rates are at historic lows, the ARM is not the best long-term loan option as the only place for those rates to go over time is up. Anticipating this would be the case, I started the process of converting the 30-year ARM to a 30-year fixed rate loan with my lender at Guardian Savings Bank shortly after construction was completed. While this type of refinancing is pretty simple and straightforward, it does require an appraisal of the property to determine if the loan-to-value ratio is above or below 80%, which determines whether or not a borrower will need to purchase Private Mortgage Insurance (PMI) on top of the debt service, to ensure the bank will be able to recover all monies owed in the event of a default. Having had a pre-construction appraisal completed with a value that was well above the 80% LTV required to avoid PMI, I anticipated the post-construction appraisal I scheduled in October 2015 would come back with the same value. However, as I wrote about in a previous blog post, that was not the case due primarily to bad comps. Confident this appraisal was not a true reflection of the actual value of the home, I made the decision to hold off on converting the loan until I could get the property re-appraised at a value that would exceed the 80% LTV requirements and PMI would not be required.
Fortunately, with the emerging home buying market in Pleasant Ridge, I didn't have to wait very long to get a new set of comparable sales that better represented the true value of the SH2.0 Pleasant Ridge house, which could be used in the re-appraisal I had completed in May. Learning from my failures in the last appraisal, I made a point this time around to do a better job of providing the appraiser with additional up-front information to give a more complete picture of the project and surrounding neighborhood. This included supplying a list of recommended comps (2 of which ended up being used in the final report), plans of the house along with a list of material selections, and a guided house tour in which I pointed out the many unique features of the home. In the end, these efforts paid off as the appraisal came back with a value that was equal to the original pre-construction appraisal and met the 80% LTV requirements for avoiding PMI. As an added bonus, the interest rates on a 30-year fixed mortgage actually went down from where they were at in October, so the previously failed conversion ended up working out to my advantage in that regard. 
My loan closing took place this past Monday and below are some images from the appraisal report that show the comps that were used in establishing the current home value.