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Real Estate Appraisals and Your Mortgage: An Interview with Cynthia Gleason of MortgageWorkshop, Inc.

By Cynthia Gleason

Tell us a little about your company and its foundation.

MortgageWorkshop, Inc was founded in 2008. We're a small customer service oriented company, with passion for helping people find the right resources to meet their real estate financing needs. As a licensed Massachusetts Mortgage Broker, MB57942, MortgageWorkshop serves their client base as a broker that arranges loans. Although we do not make loans, our team has years of experience in industry which means our clients have access to a variety of lenders and banks ? this ensures we are able to match our clients with the lender that will provide the best possible outcome.

What services does your company provide?

MortgageWorkshop, Inc. is a full service mortgage broker. We guide customers through the entire process of purchasing or refinancing a home. We have relationships with many different banks and lenders, so we are able to research, compare and shop each potential loan application to find the right mortgage product. Our loan team will walk the borrower through all the steps from application to closing.

What factors most influence your mortgage?

The three major factors that influence the outcome of a mortgage application are credit, income and equity.

A borrower's credit history tells a lender something about his or her willingness to repay the loan. Making payments on time and not over extending one's self with excess debt are important factors in establishing a good credit profile. For borrowers that are just starting out, or that have had some credit challenges in the past, it's a good idea to have a preliminary credit review to determine what steps can be taken to achieve the best possible credit rating prior to applying for a mortgage.

A borrower's income is important because it establishes the maximum loan amount that a person will be able to borrow. The Dodd-Frank Wall Street Reform and Consumer Protection Act, which has been phased in over the past several years, places fairly strict regulations on lending decisions when it comes to a borrower's capacity to repay a loan. This means that lenders are held to certain standards in order to prevent loans from being made to people that cannot afford the payments. All loan applicants should expect a comprehensive review of their tax returns, paystubs and other documents relating to income.

Equity refers to the Loan To Value Ratio, sometimes referred to in the industry as LTV. The more money someone is trying to borrow relative to the actual value of the property, the more risk the lender takes on in making the loan. In general, the higher the Loan To Value Ratio, the more expensive the loan will be. Added costs for high LTV loans can come in the form of mortgage insurance premiums, higher interest rates, higher up-front fees or any combination of these. Making a large down payment is one of the things that can help a borrower qualify for the most favorable loan terms.

How can a home appraisal influence a person's mortgage?

The appraisal can influence things in a number of ways. First, it establishes the value of the collateral (the home). By dividing the loan amount by the collateral value, the Loan To Value Ratio (LTV) is determined. For example, a $180,000 loan on a house worth $225,000 would have an LTV of 80% ($180,000/$225,000). At 80% loan to value, mortgage insurance would not usually be required. If the same house were appraised for $200,000, the loan to value would be 90% ($180,000/$200,000) and mortgage insurance would likely be required.

When an appraisal for a home loan is done, a second area of concern that people sometimes don't think about is the condition of the home. Fannie Mae, Freddie Mac, FHA, VA, USDA and almost every lender out there have specific requirements about the condition and habitability of a home. For house hunters hoping to find a "fixer-upper" this can limit financing options, as most repairs must be made prior to closing. Fortunately, there are still loan options available to purchase homes that need work, but borrowers should always be aware that the appraiser is not a home inspector, but the appraisal report may note some conditions that require repair in order to obtain a the loan.

Is it smart to get your home appraised prior to refinancing your mortgage?

We don't typically recommend purchasing an independent appraisal prior to applying for a loan. One reason is that an appraisal ordered by the homeowner cannot be used to satisfy the lender's appraisal requirements. The lender will order its own appraisal, so ordering one in advance will result in two appraisal fees for the homeowner. Most homeowners have a relatively good working knowledge of the approximate value of their home, and should have a discussion with their mortgage originator about the value, Loan to Value Ratio and the possible effect of an unexpected appraisal result.

What's the best way to contact your company?

MortgageWorkshop, Inc. is online at www.mortgageworkshop.com. We're also reachable by phone at 508-626-8400. You can reach the President of the company, Cynthia Gleason by email at cynthia@mortgageworkshop.com.

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