VLT Training

Training Day #5

Training Day 5: Navigating Contracts and Appraisals in the Mortgage Industry

Introduction

Welcome to Training Day 5 of the Boots 2 Loans program. Today, we will explore contracts and appraisals, two critical components of the mortgage lending process. Understanding these elements is vital for a successful career as a Relationship Lender and Loan Officer, ensuring that clients receive the best possible service when securing a mortgage loan.

Contracts

  1. Reviewing Contracts:

As a mortgage loan officer, it is essential to carefully review contracts and understand their terms and conditions. Pay close attention to the following aspects:

What to look for:

  • Loan amount and interest rate
  • Closing costs and fees
  • Contingencies (e.g., financing, appraisal, inspection)
  • Deadlines for meeting contingencies and closing
  • Seller concessions or contributions
  • Property description and included items

Appraisals

What is an appraisal?

  • An appraisal is an unbiased, professional estimate of a property’s value. Appraisals are required by lenders to ensure that the loan amount does not exceed the property’s worth, protecting both the lender and the borrower.

Reading Appraisals:

  • Understanding the content of an appraisal report is crucial for loan officers. Pay attention to the following sections:
  • Property description and characteristics
  • Comparable sales analysis
  • Adjustments for differences between the subject property and comparables
  • Final appraised value

VA and FHA appraisals:

  • These government-backed loan programs have specific appraisal requirements. VA appraisals focus on a property’s safety and functionality, while FHA appraisals require adherence to minimum property standards.

Govvy vs. Conventional Appraisals:

  • Government (Govvy) appraisals, such as VA and FHA, typically have stricter requirements than conventional appraisals. It is crucial to understand the differences to navigate the appraisal process effectively.

Disputing an appraisal:

  • If a borrower or loan officer disagrees with an appraisal, they can request a reconsideration of value (ROV) by providing additional information or comparable sales. However, the success of an ROV depends on the strength of the new evidence provided.

Debt Service Coverage Ratio (DSCR) Rental Appraisals:

  • For rental property investments, the DSCR is a critical metric that compares the property’s net operating income to its debt service. Lenders use this ratio to assess the risk associated with financing a rental property.

Commercial Real Estate Appraisal

Commercial property appraisals differ from residential appraisals due to the complexity of the property types, income-generating potential, and various valuation methods used. It’s essential for loan officers to understand these differences to assist clients with commercial mortgage loans effectively.

Conclusion

Contracts and appraisals play a vital role in the mortgage lending process. As a Relationship Lender and Loan Officer, understanding how to review contracts, read appraisals, and navigate the various requirements associated with different loan programs will significantly enhance your ability to help clients secure mortgage loans tailored to their unique needs.