Easy strategy implemented to help clients avert loan fee

“My clients had excellent credit and income and I had run the ‘automated valuation’ which came up with a value of $1.749 million, so accomplishing the $500,000 cashout looked like a cinch. However, the actual appraisal came in at $1.65 million, which brought the “LoantoValue” to 70.3%.”

Mortgage broker: Liz Bayer, ProMortgage.

Property type: Singlefamily home in Alameda County’s Temescal neighborhood.

Appraised value: $1.65 million.

Loan amount: $1.155 million.

Loan type: 30year fixed.

Rate: 2.875%.

APR: 3.093%.

Backstory: Lately about 80% of the loan transactions I have closed have been “cashout” refinance transactions, as borrowers are benefitting from the large amount of equity in their homes.

In this particular transaction, I was approached by past clients who wanted to refinance their home to take out $500,000 to be used to expand their home for their growing family.

My clients had excellent credit and income and I had run the “automated valuation,” which came up with a value of $1.749 million, so accomplishing the $500,000 cashout looked like a cinch.

However, the actual appraisal came in at $1.65 million, which brought the “LoantoValue” to 70.3%. Rate pricing is very much impacted by the LoantoValue.

Essentially, the lower the LoantoValue, the better the rate pricing.

In this case, since our “LoantoValue” crossed the 70% threshold, this had a negative cost to the rate pricing of $4,350.

Had the property appraised at $1.658 million, (just $8,000 higher) we would not have had this negative hit to our pricing.

Rather than incur this significant cost, I reached out to my clients and recommended that we simply reduce the loan amount from $1.16 million down to $1.155 million, which brought the “LoantoValue” back in line with the 70% instead of the 70.3% number.

While this meant that my borrowers got $5,000 less in cashout proceeds, this at least was not a COST to them. They simply left $5,000 of equity back into the home. We opted to take this common sense approach and resolved averting that fee.