Most loan programs, be it Conventional, FHA, VA or Rural Housing, require the borrower to pay for something.  In particular, FHA and Conventional home purchases want a minimum of 3% to come out of the borrower’s pocket.  If you are doing a Conventional loan, you still can’t receive a gift for your 3% down payment, but you can use a gift to help with closing costs. However, FHA will allow your source of down payment to be a gift.  So, if you find yourself a bit short on cash, you may need to ask someone to gift you the down payment or closing costs (or if your really lucky, and it’s allowed – both!).

All lenders are particular about just who can give you a gift for your down payment or closing costs.  Pretty much across the board, the gift must be from a blood relative.  You may have to prove that the gifter is a relative thru birth certificates, christening records, etc.  Strange but true.  Conventional loans will also allow an employer to give you a gift.  But in any case, the most important factor is that whoever is giving the gift does not expect to be paid back.  A certification to that effect will be required to be signed by the donor.  Otherwise, it’s really a loan, now isn’t it?  And as a responsible lender, we’re going to include that payment in your debt to income ratio, and we’ll probably want a bunch of documentation to prove the terms, etc.  So, make sure it truly is a gift.

As of the date I’m writing this article, FHA will allow for down payment assistance programs, such as Nehemiah or Ameridream.  Lenders view these products as “gifts” in a sense. They are basically seller concessions funneled through the down payment assistance channels.   However, by the time this article is published, they may be null and void.   It’s currently being reviewed and could go away.  Or it may still be there, but just know it’s under review.

Lenders are very particular about how the gift funds reach the closing table.  If you deposit the gift before closing, you have to show it coming out of the donor’s account and depositing into your account.  It’s a lot of paper to collect.  The easiest method is for Grandpa or your Great Aunt to just send a cashier’s check payable to you and your title company to the closing table.  Smoother, quicker, simpler.

Gifts are a wonderful thing, and a gift of a down payment is a useful gift.  After all, I think it’s safe to say that homeownership is one gift that keeps on giving, wouldn’t you?

Appraisals typically cost anywhere from $350 to $400. However, if the house is gigantic, multi-unit or in the boondocks, it could run more. The cost varies on property type, location and square footage.

The most common type of appraisal is the Uniform Residential Appraisal Report (URAR). It consists of interior and exterior photos and sometimes (depending on the age of the home), a complete cost breakdown of the property and comps (comparison sales of homes nearby that meet the proper criteria). These comps help determine the “market” approach. Each comp sale is adjusted in value when stacked against the home being evaluated (the one you’re buying or refinancing). Usually you will see a comp below the value of your home, in line with the value of your home, and a third above the value of your home. Kind of like the three bears. But if the valuation gets tricky, you can see fourth, fifth and sixth comps. The net value of the comps is estimated based upon the approaches used to come up with the appraised value of your property (meaning the appraiser performs some type of calculation that’s kind of like an average, but not necessarily a true average. Confused yet?)

URARs also, typically but not always, reflect a cost approach, which determines what the value would be based upon what is estimated it would cost to rebuild the home, less depreciation. The final estimated value of the home is then determined by using a melding of the market approach described above and cost approach (if applicable).

Lori Babb, Staff Appraiser for Mortgage Investors Group of Knoxville, TN, further explains comparables. “The best comparables are those similar in size, style (ranch, basement rancher, 2 story, etc.), age, and are close in proximity to the dwelling being appraised,” she explains. “Unique properties will typically require more adjustments than the average properties.”

So, say you’re Bill Gates and want to secure a mortgage on a $200,000 home (I know, it’s ridiculous, but I’m trying to make a point). He’s got the best credit profile a lender could imagine, yet the house appraises for $175,000. Deal or no deal? You better believe it’s no deal. The sales price will have to be lowered, or Mr. Gates will just have to pay cash for his new home (you think he can afford it?). The point is, your average Joe won’t go ahead with the deal without a price adjustment, and he will be obligated to pay for the appraisal regardless of the outcome of value.

Dan Tyrell, principal of Knoxville area’s Tyrell Appraisal Service, Inc., has this comment about value, “When determining value of a single family house, beauty is more than ‘skin deep’. Fresh paint, new carpet, new appliances, and nice landscaping all enhance the marketability of a house. Not so obvious items also impact the appraised value of a house. For instance older houses that have replaced plumbing/electrical systems, updated HVAC systems, newer roofs, replacement windows, etc. lower the effective age of the property which in turn increases the appraised value.”

There are other types of appraisals that are not as common, like an Automated Valuation Model (or AVM). In this case, different factors combine to ensure the value of the home (it’s worth $200K, but your loan amount is only $100K) and your unbelievable credit worthiness (800 credit score!), allowing you to skip purchasing a typical appraisal. You may also only be required to get a “drive by” appraisal, where the appraiser just inspects the exterior of the subject for size, looks at the lot and makes you wonder who that person standing by your mailbox is.

Most lenders control what appraiser is used to determine the value of your home. After all, it’s their money on the line. The appraisal is such an important factor to the mortgage transaction – make sure you’re satisfied with the results. Your lender will make sure it is satisfied!