Frequently Asked Questions

What factors are used to determine the type of appraisal needed for the purposes of refinancing or purchasing a property?

What type of appraisal is needed for refinancing or purchasing real property?

What is Private Mortgage Insurance (PMI)?

How can PMI be eliminated?

WHAT FACTORS ARE USED TO DETERMINE THE TYPE OF APPRAISAL NEEDED FOR THE PURPOSES OF REFINANCING OR PURCHASING A PROPERTY? 

This depends on three factors:

1. The borrower's credit score
2. Down payment and/or equity, and
3. Where the property is located.

A majority of mortgages are purchased on the secondary market by Fannie Mae (FNMA) or Freddie Mac.  Both FNMA and Freddie Mac have computerized automated valuation models.

These models are specifically Desktop Underwriter (DU) for FNMA and Loan Prospector (LP), for Freddie Mac.  Most lenders, bankers, mortgage brokers and mortgage bankers use DU or LP to determine the type of appraisal to order.

  

WHAT TYPE OF APPRAISAL IS NEEDED FOR REFINANCING OR  PURCHASING  REAL PROPERTY?

This depends on how DU or LP determine the risk for  a specific borrower and/or property.  However, these are most of the options:

1. Full Appraisal - Uniform Residential Appraisal Report (URAR) or 1004.
2. 2055 Interior/Exterior Appraisal, with an estimated market value.
3. 2055 Drive-by Appraisal, with an estimated market value.
4. 2070 or 2075  Drive-by Appraisal doesn't provide a market value conclusion.
5. 2065 Qualitative Analysis Appraisal with an estimated market value.

The full appraisal includes the three approaches to value: The sales comparison approach;  the cost approach, which includes the site value; and the income approach. 

The full appraisal has been the industry standard for many years.  However, FNMA and Freddie Mac re-designed newer, streamlined reports.  These include re-design reports FNMA 2055, 2065, 2075, and Freddie Mac 2070.  The 2065 was designed by FNMA, but since it is a qualitative analysis there is limited marketplace acceptance.

  

WHAT  IS  PRIVATE  MORTGAGE  INSURANCE (PMI)? HOW CAN PMI BE ELIMINATED?

PMI is the monthly insurance premium paid by the borrower in the event they default on the loan.  PMI, is typically required for loan balances less than 80% of the market value of  the subject property (Loan-to-Value ratio or LTV).   If there is insufficient down payment or equity, PMI is typically required. There may be other ways to eliminate PMI but a good loan officer will able to determine this and recommend a specific course of action.

PMI can be eliminated when it is demonstrated that the equity is greater than 20% of the market value.  This can be accomplished by completing a Full Appraisal, 2055 Interior/ Exterior, or 2055 Drive-by appraisal.  Current  legislation mandates that PMI be removed automatically if the equity is more than 25%.

If you have any questions regarding the information above or our appraisal services, please feel to contact us via email at wvcs1@earthlink.net or telephone at 206-240-5035.