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I've been dealing with Home Savings of America for the past 2 months with getting our mortgage through. So please forgive me if i am ranting but today they called me with my approval. The house is a new construction house on land that was gifted to me by my mother which i waited to transfer the name until i married my wife in April. It's a 2 acre lot.
The GFE estimated the value at $250k. Got an appraisal through their appraiser and it came it at $251,000 including the $43k for the 2 acres. Only problem was that they had appraised the new construction at 1500sq.ft finished instead of the 2200sq.ft it was. I contacted the 'data collecter' She said 251k is a great number that the square footage really wouldnt make a difference. I said it does when i have to pay PMI on it. She said it wasnt a problem she'd put a note in to contact the appraiser though. I called the appriaser directly and informed her of her mistake (she had the blue prints with the square footage already even figured up). She sent over the revised copy immediately. It was $273k.
2 weeks later i emailed the data collector to ask her if there was an progress. She got back to me a couple days later and mentioned she just spoke to the underwriter and that they would need to request an exception since i hadnt had the land in my name for atleast a year.
A week later (today) she got back to me, called me to tell me the good news that they granted the exception but because i hadnt owned the land for a year they would only base the value on site and improvements and not the appriasal. So they are giving me the $43k value of the land but only $208k contract price of the house even though it it appraised for $22k more (and magically the first appraisal number as well as their GFE value). They said this is standard and there is no way around it. They also told me i have to pay PMI for a minimum 3 years (we are going conventional) then i could get an appraisal and if it appraised for 80% or less i could have it removed. It's appraising at like 76% now so this is all extremely rediculous.
What difference does it make if i havent owned the land atleast a year? My parents could give me the money and it would be fine to use for a downpayment but why does it matter if i havent had the land a year? Why do i have to pay PMI for 3? She couldnt tell me how much it would be but figured around 50-70 a month. Granted i know it's not alot of money but it seems ludicrous for me to pay something for absolutely no reason at all.
Does any of this sound right to you? It would make more sense to me if they wouldnt accept the 43k value of the land, but would allow the house to be valued at the appraised 230k. I may be paying 208k to have it built but thats after alot of negotiating on price and should have no affect on the appraisal. The rebuild cost approach for the appraisal was 332k with 43k for the land.
Am i just being a dumb first time homebuyer and getting mad about something that's normal? It just doesnt seem normal to me although i cant say i have any experience dealing with any of it.
I should add that our builder is carrying the cost of the house that i do not need a construction loan. i just need the loan the day i get my Certificate of Occupancy 3-4 months from now.
You are not being dumb, but unfortunately the LENDER gets to set all the rules ESPECIALLY for new construction becuase those are historically the RISKIEST types of loans. They really and truly do not care one whit about the "replacement cost" because they would NEVER be asked to rebuild the place. Worst case you stop making payments, they foreclosue and have to SELL IT.
In some ways the fact the builder is willing to carry the cost of construction makes the estimate of final value EVEN RISKIER, as many lenders do have third party that will verify the construction phases at each phase of the completion -- with out an unscrupulous lender could scrimp on many areas that result in their profit going up. Of course if you employ some one to represent your interests , or the builder is some one that has demonstrated a commitment to trustworthy and quality labor that might not be an issue...
Frankly even an INSURER does not truly want to pay for the true "rebuild cost" becuase if the place burns to the ground with every last thing you own in it they will be out of pocket for some "maximum assumed liability" and they will be cutting checks to get you a rental house and then settle for you to have enough to rebuild and replace the stuff that was insured but also looking for ways to get things done for far less...
Well the appraised value is $273,000 not the replacement. They will only credit me $251,000 because thats the value of the land and what im paying for the house. Does that sound right? That's what BOA said when i called them. 43k land value, 208k house contract cost. That fact it appraised for 273k doesnt matter they go with the lesser of the two is how BOA explained it to me. home savings explained it that it was because of my not having owned the land for a year. This makes more sense to me now.
I talked to home savings of america again and they assured me the difference in price was because of not owning the land for a year. The data collector also told me that she checked and i could get and appraisal after a year to get rid of pmi. The mortgage broker is telling me 3 years but the lender told me 1 so i dont know who is right.
So i have to refinance to remove PMI or do i just need an appraisal to show them the value of the house?
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