FREQUENTLY ASKED QUESTIONS

What is the difference between assessed value and appraised value or are they the same? Who does the appraisals?

As customarily defined, the assessed value of a property is the property value determined by the municipal taxing authority for the purpose of levying real estate taxes. Appraised value refers to the value estimated by an independent appraiser which is most commonly fair market value. Appraisals are also done for a variety of other reasons including estate valuation at time of death, appraisal for condemnation purposes or an insurance appraisal.

While in theory assessed value should reflect the actual market value, in reality it often misses the mark. For one thing, municipalities are not necessarily required to revise their valuations annually, thus within a few years of a general revaluation, the market and assessed values on a property could have diverged significantly.

The answer to your second question is that municipalities nowadays typically hire an appraisal company to perform a reappraisal of the entire community every 3-5 years. This may or may not include an interior inspection. That can depend on the municipality, the owner and other factors.

Appraisals for other purposes are generally performed by licensed individuals and these show the value as of a specific date. Real estate licensees typically offer a market value analysis to prospective sellers, but these reports are not usually as extensive as in the case of a formal appraisal. While states now license appraisers, appraisals may be performed by unlicensed appraisers unless the client requires otherwise. Today most active appraisers are licensed.

Appraisal costs run anywhere from the $300's for a modest single family home to several $1,000's for small commercial property.

As a first time buyer, I've been approved in a conventional mortgage - I'd like to make an offer on a property that exceeds my current resources to act. I've heard that an additional mortgage can be taken out to provide me with the balance. How is this done and what is the impact?

Without further details, it is a little hard for me to give you absolutely complete advice regarding your specific situation however; I think the following should be of help.

First, there may or may not be restrictions placed on you as borrower by the lender in terms of additional borrowing above the amount you have been pre-qualified for. Furthermore, do not be tempted to borrow additional money for the purchase when the bank's policy disallows that. Some loans permit the borrower, you, to obtain gifts from third parties for a portion of the purchase price but there cannot be any repayment requirement. It must be a true gift.

Now, if the bank/lender will permit further borrowing by you then the options include some of the following:

1.      A line of credit from the same or any other bank

2.      A cash advance on a credit card

3.      A home equity loan from a bank that allows additional borrowing above the actual market value of the property you are buying

4.      A personal loan from a bank

5.      A seller note backed by a second mortgage on the property you are buying

As you can see, there are several possibilities that involve an additional mortgage, either from the bank itself or from a third party like the seller. The main thing is to make certain that you can indeed afford the additional monthly debt burden that the increased borrowing requires. While we all want to have as nice a home as possible, if the debt burden is too high, there is the risk of losing the home in tough times. Additionally, as wonderful as our system of credit is in this country, it's possible for millions of people to purchase a home that otherwise they never could afford, the amount of interest paid back for this privilege is colossal and so the more you borrow over longer periods of time, the longer it takes to build equity even if there is steady appreciation in the market.


 

Explain in detail loan to value and debt to income ratio.

Total monthly debt, is defined as loan payments and revolving debt, as a percentage in relation to gross monthly income. Individual banks have different thresholds as to the maximum percentage they will allow.

Loan to value ratio is the percentage of the total VALUE of the property, not necessarily the PURCHASE PRICE since the value as determined by an appraiser could be different from the purchase price, to the VALUE. Therefore for example, if the property is VALUED at $100,000 and the loan requested is $70,000, then the loan to value ratio is 70%.

Rate is the interest rate being charged by the bank or lender, such as 5.25% and the term is expressed usually in years. When calculating the actual monthly payment, remember that it is interest and a portion of the principal amount as well. Using our example of a $70,000 loan at 5.25% for a term of 25 years, the monthly payment would be $419.47 each month.