Loans—What's the Scoop?

People ask me all the time how hard it is to get a loan. 

Not so long ago, it was easy for a borrower to get a loan, and of course we are paying the price for that debacle every day.

It’s especially sad to see the folks who went through a foreclosure or short sale and now do not qualify for a loan. Some of these people were just victims of circumstance and are incredibly responsible people who would like to be homeowners again.

No longer is it possible to get a “stated income loan.” This is just what it sounds like. "How much do you make?" you are asked. You could state “$One million a year” and no one would question it. 

Nor is it possible to get a negative amortization loan. With this loan, you owe more with each passing day. Your payments do not cover all the interest, so you add to the principal with each payment. Many people, without fully understanding the ramifications, chose this type of loan to qualify for a home they couldn't afford. But no worries, because real estate can only go up in value ... right?

Today, obtaining a loan requires that a borrower qualify for the loan. Reasonably enough, you must have a decent credit score and documented income.

But the next hurdle will be the property. The loan approval will be for the borrower and the property.

If you are in the market for a condo, you may be in for a surprise.

I have a new listing in Walnut Creek in the Mercer Building. This was a project that generated a huge amount of excitement when the building went up in 2006, and the condo I now have on the market for $599,000 sold then for almost $1 million. It is lovely, see the virtual tour. The price reflects more than just a decline in real estate—it reflects the fact that this condo does not qualify for a conventional loan.

The builder never sold all the units—so the remaining 25 percent of the condos for sale became rentals and are owned by the builder. This little detail means the condo cannot get a “condo cert,” which is required for Fannie Mae funding. So I am in search of a cash buyer for the property.

As Kelly Copland of Bank of America explained to me, “Condos are just really tough right now as they haven’t held value, and then when they start to go as investor or all-cash deals the scales tip even further.”

In other words, the fact that it may not be possible to get a loan (I haven’t given up!) for this property will reflect even further on property values in that building.

Even if the property in question is not a condo, the approval process will include the appraisal. In an effort to make things better for the consumer, the appraisal process was revamped. Lenders cannot designate their favorite appraiser (which makes sense) and in fact they have no communication with the appraiser.

The new rules sound good in theory, but this week I am battling with an appraisal situation regarding a home in Alamo. 

The home is on the west side. I made sure the appraiser was someone who appreciated the importance of comparing west side properties with other west side properties.

When the appraisal came in (under our contractual price), I glanced through the comparable sales and was surprised to see several that were not equivalent in desirability (different school district, poor location near freeway).  When I called to question him, the appraiser said that he did the report one way, but the company he turns it into requires a certain number of comparable sales— so they added more. He was surprised to hear that the house didn’t appraise.

I know the industry needed to make some changes to the appraisal process, but I’m not convinced they made all of the right changes.

So, the question is, is it hard to get a loan?

For many people who suffered a foreclosure, yes. For anyone wanting to buy a condo, yes. For someone with 20 percent down conventional financing, and a house that doesn’t appraise, yes.

But rates are excellent—slightly higher this week than last, but only slightly.

If your credit is good, your income is documentable and you’re not afraid of the appraisal process, this is a nice time to apply for a loan.