AmeriServ Presents: Bank Chats, with Drew Thomas.
Assuming that I put an offer in on a home, how long does it take from the day that you say yes, I want to buy this house, to the day I get the keys and can walk in and start painting? I typically tell people 45 days, but it can go either direction. A big chunk of that time is sitting around waiting for an appraisal report to be prepared. And the appraisal basically gives us dollar value, an estimate of the market value of the house at that moment, you know, the appraisals are ordered,
typically, once we have an idea that this is going to at least be conditionally approved, and then it's typically a 30-day window. Sometimes they float in really quick, and sometimes, depending on the complexity of the property, the circumstances around it, the location of it, it can go 45 days, sometimes even two months, to get an appraisal back.
So, the waiting really is the hardest part is what you're saying.
Tom Petty, indeed, was right. And, like I said that there's a whole process involved with the appraisals so, that it's kind of going into minutiae about that part of it. But an appraisal is assigned, the appraiser acc-, you know, accepts an offer, makes a bid, basically, it's accepted, it's assigned. And then the appraiser typically has a couple of weeks to actually go out, they'll actually walk through the property, they'll walk around the property, they'll take pictures of the exterior, take pictures of the interior, and then they'll sit down and start looking at recent sales of comparable houses. And they're called comps. And try to come up with a, an idea of comparing comp, one what might have, has a three-car garage, well, this only has a two-car garage. And that house sold for $200. So, I'm gonna say I'm gonna have to knock $20,000 off because it's got a smaller garage. Yeah. So, there's a bunch of adjustments that are made in it. And some of that science and some of its art.
I was gonna say it sounds like maybe there's, there's a little bit of, of subjectivity to it. There can be.
Yeah. Because it, because again, there's no formula for any of this. But at the end of the day, the appraiser is basically signed, and an appraisal would be like, by the time it's done, it's like 30 pages. Now, a lot of that is boilerplate. But you know, it's also, at the end of the day, the appraiser saying, I've looked at the house, I have my hands around the condition of the house, the quality of the house, I've, I've looked at the recent market activity, identified at least three houses that have sold reasonably close in geography and time. And I've made adjustments to those three sales, trying to more or less, get my hands around a number, even the playing field. Yeah, right. At the end of the thing, they boil it down to a number. Yeah. And there's, there's, like I said, it's part science, part art. But at that point, the bank now has dollar value for what the collateral, the purchase, you know, the property that's being purchased. And it's another one of our ratios that we look at, it's called the loan-to-value ratio. So, we can say, you're borrowing $100,000, the appraiser says the house is worth $200,000. Well, that's a 50%. loan-to-value ratio. Yeah. And that's where that 80% loan-to-value that we talked about, which tends to trigger this PMI, and yes, like that comes in. But that's, that's really kind of the biggest chunk of the delay. At the same time, while that's going off, going on, it should, there should be somebody doing a it's called title work. And it's basically going back in time and the history of that house as far as the ownership of it and making sure that there's no outstanding mortgages that were not satisfied. Outstanding liens of other types. We have their hands around who the actual seller is the legal seller, those sort of things that's being done by a vendor or a title agent. But that's going on roughly around the same time that the appraisers...
Yeah there's, from the I, I, I dabble in history, and it's one of those things where, you know, things like jokes and so forth come about from, from little tidbits of truth in a lot of ways. And the idea of being able to sell the, you know, there were somebody out there that that years ago, sold the Brooklyn Bridge, like 12 times. Because nobody confirmed that he actually didn't own it to begin with. Exactly. So, you know, you have to understand it, you know, you got to make sure that the person who's selling you the house is actually the person who owns the house to begin with and is legally allowed to sell it to you. It's very important. Yeah, that is a big deal.
Yeah. So, the title works going on at the same time, so usually within, once the appraisal has been in and an underwriter needs to look at the appraisal and say, alright, this will make some sense to me. And there's, like I said, because there's some, it's part art part science, and there's sometimes you look at an appraisal and you go boy these adjustments, some of them are just weird. And sometimes you push back, you go back to, to the appraiser, basically. And again, I'm trying not to go too into the, into the weeds here, but we actually use an outside vendor to manage our appraisers. So, we'll actually go back to that vendor and say, you know, I've looked at this appraisal, and I don't understand the adjustments that were made here, here, and here, I just need, it needs an explanation. And a lot of times a good appraiser will have, will already identify if there's some strange things on there, and they'll document it and they'll sort of articulate yeah, normally, I wouldn't use a house like this, but it was the only one within a five-mile radius... Yeah. At the same time, the borrower gets a copy of the appraisal after it's been approved by the underwriter. And we've had occasions where, you know, the borrower has said, I disagree with the appraisal and is appealed it. So, in that case, we basically get a, they fill out a form, we forward that to AM-, to the AMC company, the appraisal management company. And then that gets forwarded to the appraiser and the appraiser has to respond. So that can take up a little more time as well. But typically, once you have an appraisal in the title work in hand, it's usually at that point, it's really just a question of any final conditions that we're chasing? And scheduling it with the title agent to get it closed.
So, let's you know, as we're getting sort of close to the end of the process here. So, you know, people, when they're looking to buy a house, they know that they're going to need a downpayment, right? They, they know they need, and depending on the mortgage, that can be a certain percentage, it could be 3% 5% 20%. I don't know how many people actually have 20%, to put down on a house these days. I know that used to be very typical that you needed 20% down. But I think what a lot of people tend to look over are closing costs, and how much money you need to bring to the table to get your keys even after all of this process. So, what goes into a closing cost?
So, closing costs are typically things like, the bank charges an origination fee, that could be anything from $100 to a couple $1,000, depending on the financial institution, size of the loan, things like that. Other closing costs are things that are specific to the title company, the cost of the title insurance policy, because as part of the closing the, there's going to be a title insurance policy written to which I guess we probably should have touched on. And that's basically, the person that did the search on the property to make sure it was transferred correctly, everything else is basically ensuring that there aren't going to be any surprises on the bank's ability to have the first lien on that property. So that's a charge. There's two kinds of those policies, actually, the borrower has the option to get one too. So typically, the bank requires one, it's optional for the borrower, but the borrower may say, well, I'm buying this house for $200,000, if that turns out, there was a Native American burial ground that nobody knew about, and now it's a thing, which, which has happened, like in the south more, Florida, I know it happened. I have some way to recover my investment. Right, but the bank's gonna at least be covered for, like I said, like banks lending $100,000, the title policy is going to be for $100,000. And that's just making the bank whole. So other, there's various, there's the fee to actually prepare the documents or to get them signed. Those documents, some of them, the actual mortgage, which is the document that gets filed with the county saying that that's a lien against the property, that gets filed, there's transfer taxes, various document fees, things like that, that need to be covered.
And really your, your down payment is when you actually bring that to the table to, right, which is, which is kind of sort of backwards when you think about because you think about a downpayment being at the beginning of the process when you're, when you're starting everything, but it's actually something you bring to the table when you're, when you're closing.
So, it's a good point. So typically, on a contract, especially when, in times like they, like these that we're in and have been in for the last couple of years, the seller isn't going to want to take their property off the market for 45 days, without some kind of down payment an initial down payment. So typically, what you'll see on a purchase sale contract is, that requires, say, $10,000, due at signing. And that's typically held in escrow by the sellers, realtor or somebody else. But the, so there is that initial down payment that was written at the time of the sales contract. But yeah, but to get at the end of it, that's where, and that's why, like I've mentioned a couple times, we're looking at their deposits, deposit accounts, things like that, just to make sure that they have enough money actually to get to closing because, you know, most of the time, when you go to closing, except on maybe a refinance, you're writing a pretty, pretty stout check, because you're buying, you may be putting 20% down on top of the closing costs.
And that's why you're looking back several months, even from the, from the day is because you're trying to make sure that, you know, people didn't go to their, their buddy, and say, hey, can I borrow 5 grand or 10 grand or whatever, and throw it in my bank account, and then claim that I have the money to pay my bills, when, when I don't, right. So that's why you're looking back to make sure that...
And to put a finer point on that, actually what we're looking for is to make sure you didn't borrow money and then agree to repay it. Because part of that, you know that because that would need to be factored into the debt to income. So, what we're looking for is the $40,000 in your checking account is $40,000 of your own money. There are some exceptions, you can have gifts from family members and things like that. But that family member actually signs an affidavit saying, this is just a gift. There's no repayment expected, required, anything else, you know, I'll never see this money again. So, there are ways around that. But really what we're looking for is, did you borrow somewhere to get this $40,000? Or do you have $40,000 because you've been scrimping and saving for a couple of years to put that money together?
Okay. So, so, so now we have a house. Theoretically. Yeah. Which is awesome. And now we get...
...your headaches really start. Yeah. At least the homeownership headaches.
I really genuinely think that a lot of people, they, they don't appreciate what goes into a mortgage, you know, and they, and that also may speak to some of the reason why some of these ages that I talked about at the very beginning of the show have gone up because people don't have the savings. People don't necessarily have the income at 29 that they maybe did in 1981, even accounting for inflation and things like that. They, you know, people don't necessarily have that coming in at a younger age these days. And there are other factors that result in...
The cost of housing has gone up so much. Yeah. Actually, I was reading an article and I, I'm almost positive, it said the first-time homebuyer in San Diego is paying something between $400,000 and $600,000 for their first home. Yeah, a lot of times first homes are sort of classified as two-bedroom, one bath. Yeah, sort of things. I mean, this is a small house in San Diego for $600,000. So, because of that, because the real estate prices have gone up so much. It squeezed out younger people.
And I know too, like even just the, the, the, the income streams are not what they, what they may have once been. I mean, the days of you know, my grandfather, who was a single, had, was a single income household. My grandmother was a homemaker my grandfather worked, was the only one that got, and they, they had a house in a nice neighborhood with three kids and did all that on his income. That's not always easy to do these days either. Almost impossible. So, so, so I mean, owning a home is wonderful, and it has a lot of advantages, but there are a lot of responsibilities that come with it. And I think that just as a last point, I wanted to sort of just highlight something that you had said was that the house is your collateral, right? So, you're buying a house, but technically it doesn't belong to you until you've paid for it. So, kind of like your student loans or any other kind of loan that you're taking, if you don't make your payments, that for you, yeah, that, there can be consequences to that. Right. So, there can be consequences to it, you know, and typically the way a mortgage loan gets vetted, you're trying to weed out circumstances where somebody either can't afford it or has a history of not repaying their debts, things like that, and trying to weed that sort of scenario out very early in the underwriting process. But yeah, there are circumstances, things change, people lose jobs.
Well, you mentioned divorce earlier. And then, yeah.
The Right, exactly. I mean, it's changed jobs, change jobs, change circumstances. And if you find yourself in default, on a mortgage, it is a long, protracted process, partly because it's not in the bank's interest to take you out of that house, the bank will typically do everything they can to try to keep you in that house, as long as you're making a good faith effort to try to rectify the situation. But yeah, the bank doesn't necessarily want to be in that house, because a hou-, a house sold by a bank, it's basically a sign that you can buy that house, if you're an investor, you know, somebody's looking to buy that house for a lot less than if it was being sold under regular circumstances. There's a, there's a certain amount of duress in that transaction. So, the banks don't want to be part of that, unless they absolutely have to. But it does happen.
Yeah. And I think, I think you make a good point. I think that a lot of times when something like that happens to someone where they can't necessarily make their payments or something happens, you know, you don't always know, but you assume it's out of their control. Like, they maybe they lost their job, through no fault of their own or something like that. It's not really something where someone is predatorily trying to take your house away from you.
Right, right. I mean, that in, there may have been circumstances historically, where those sorts of things happened. Fair, yeah, fair. In today's environment, it's hard to imagine a lender would lend you $200,000 to buy a house, and not want $200,000 plus all the accrued interest back, that they'd rather have the house that you bought. But, the one thing, and just to bring this up, that's some people seem surprised by is, when you walk away from a house, it's not just done. You still owe 100, say, $180,000 on that house. If the bank sells that house for $140,000. You still owe $40,000. Right, right. Yeah. So, it's, you know, that, when I was living in Jacksonville in 2008, when the housing market crashed, I talked to a couple people who said, well, I bought the house for $100,000, and now it's only worth $60,000, I'm just walking away from it. And I told them, I was like, that's not a reason to walk away from a house. First of all, prices go up and they go down. They generally always wind up going up when you look at it over time. Yeah, give it enough time. Yeah, give it enough time. And I said, if you walk away from that house, you're still going to owe them whatever the deficiency is, after they sell it. And they're going to, they're going to accrue expenses that you're going to, that is going to come out of that and everything else. You're not just walking away from it free and clear. Yeah. So, you know, unless the bank agrees to something like that. And that's called the short sale. But the yeah, it's there, It's the same thing with cars too. You decide you don't like your car anymore, and you toss the keys to the bank, yeah, and you owe $10,000, and the car gets sold for $5000, you still owe a $5,000 deficiency, right. It's yeah. So, there are some people who are unaware of that whole concept and make rash decisions that can have long term effects for them. Yeah.
Well, listen, I, I really appreciate your time and everything and going through all this. It's been, it's really an education. It truly is. And well, it's been very enjoyable for me because I love to hear myself talk.
Yeah, it's not my typical procedure to berate the guest. So, I will not counter that statement. Yeah. Well, when I listen to this may I scheduled time on to, to rebut? Yeah, absolutely.
No, we would, we would love to have you back. I mean, we would love to have you back. And as I'm sure the listeners know that we're still early on in this process. I mean, I can imagine having you back on, you know, many times. And we can reiterate some of this conversation, some of the subjects can change, I mean, look at how much has changed just in the last three years, when it comes to mortgages and home buying, and it's really much more complicated than what people I think, imagine it to be. Yeah. But that doesn't mean that if you have, if you have somebody that's good at guiding you, if you have a good lender, if you have a good realtor that can help guide you through these processes, it's not something that's undoable, right, but it isn't something that should be taken lightly either.
Right. And I tell people, when they're, especially at my age, now, these tend to be children of friends of mine, who are buying their houses for the first time, and I'll talk to him about the process. And I'll tell him, like, first of all, like, the whole process is just fraught, emotionally. You know, I bought my first house in 1998. And I think I threw up in a trash can. It's, so it's fraught with emotion. But at the same time, if you, if you just work through the process, at the end, you have a 30-year loan, typically with a rate of percentage or two points less than if you bought a car for a five-year loan. So, the process is designed to sort of homogenize all of the loans to get everybody comfortable with the val-, you know, with, with what was put into it. And that, that what's on paper is actually what's true. But as a result, you wind up with a very, fairly low-price loan for a long term. And, and it's a house, houses is typically over time, an appreciating asset it builds wealth. There are neighborhoods where people don't own their own homes, and those, those neighborhoods tend to have lower incomes and lower levels of wealth. A chunk, a big chunk of it can be attributed to the fact that they don't own real estate. So, it's an investment. Work through the process. You know, you can it's certainly okay to ask for explanations of the process, but work through the process, because at the end, you're gonna own a home for a fairly low rate and fairly reasonable terms.
Yeah. And you get to pay school taxes. You get to pay school taxes. And you get to play in Pennsylvania. I don't know if that's yeah, I don't know. And
you get to every, every couple of years replace a, an outlet, or, you know, or a wall switch or, you know.
No, I think, I mean, all joking aside, I think what you just said is fantastic. And I don't know that I could really say anything that could sum it up better than that. I think that, you know, having that appreciating asset in your back pocket, especially like you said, compared to a car or something like that is more value than then I think people fully understand or appreciate sometimes.
Because a car is a depreciating asset. Yeah, yeah.
And I can't imagine a lot of, a lot of, a lot of people opening up a barn door in 40 years and saying, a Kia Soul.
Yeah. I can't believe it, when we're off or offline I'll tell you some stories about that, yeah.
Yeah, thank you. You're welcome. All right, have a great day, thank you, you too.
This podcast focuses on having valuable conversations on various topics related to banking and financial health. The podcast is grounded in having open conversations with professionals and experts with the goal of helping to take some of the mystery out of financial and related topics, as learning about financial products and services can help you make more informed financial decisions. Please keep in mind that the information contained within this podcast and any resources available for download from our website or other resources relating to Bank Chats, is not intended and should not be understood or interpreted to be financial advice. The host, guests, and production staff have Bank Chats expressly recommend that you seek advice from a trusted financial professional before making financial decisions. The host of Bank Chats is not an attorney, accountant, or financial advisor, and the program is simply intended as one source of information. The podcast is not a substitute for a financial professional who is aware of the facts and circumstances of your individual situation. AmeriServ Presents: Bank Chats is produced and distributed by AmeriServ Financial Incorporated.
We want to once again thank David O'Leary of the AmeriServ mortgage team for joining us on this walk through a typical home buying process. While there are often unforeseen bumps and detours along the way when purchasing a home. This does give a good sense of what the process should look like. We also would like to thank you, our listener for joining us on the second episode of AmeriServ Presents: Bank Chats, and hope you'll stick around for the next episode, and the next, and the next. We have a lot of great discussions coming up in the near future. Please check out ameriserv.com/bankchats for details about the podcast, along with any supplementary materials that may be posted. And don't forget to subscribe so you know when new episodes are available. For now, I'm Drew Thomas, so long.