When working with a bank vs a private lender, there are nuances in common. There are also some key differences in the underwriting process and as it relates to requirements.
Many bank mortgages are insured through high ratio insurers, so the bank will rely on their acceptance of the property’s value, coupled with their own AVM (automated valuation model), which is essentially an automatic estimate of a property’s value, when determining if they accept the value stated in your application. If they accept the value, there is often not a full appraisal of the property completed.
Private lenders are far more appraisal-dependent and often require an appraisal even on deals where there is considerable equity in the property.
When working a deal with a bank, the bank is going to give more weight to things like a borrower’s job stability, income type, and credit history, whereas a private lender may be far more interested in how much equity is in the property. With enough equity/down payment, the most challenging borrower can often be successful getting mortgage financing.
In both scenarios, property value is key. There are instances where a lender will come back and either directly disagree or advise you that their insurer disagrees with the property’s stated value, just as there are instances where an appraisal can come in light.
The challenge here is that, once a deal is to the point of an insurer looking at it, or an appraisal being ordered, you have likely already invested considerable time underwriting and getting the deal approved and the lender has already looked at the deal in order to issue the approval. Considerable time is wasted when a property doesn’t end up being worth the stated value.
This is why many brokers are now leveraging the same tools lenders do and generating their own automated valuations of their clients’ properties at the application stage, at the same time gaining valuable additional insights like who the homeowners are, sales histories, sales comparables, registered mortgages and more.
Sales comparables are key because, even where sales comparables are concerned, a bank and a private lender may look at different criteria. A private lender may look at properties in closer proximity to the subject property or only look at sales in the past 60 days, for example. With that criteria also often required from their appraisers, sometimes it may result in a lower appraised value than what the applicant thinks their home is worth. Looking at the sales comparables yourself enables you to get an idea of what an appraisal would look like.
Sales comps provide considerable insight to brokers when underwriting a deal, and while an AVM will quickly give you an instant estimated property value, sales comparables contain additional information that may be highly relevant to your deal.
It is always a good idea to do as much digging at the beginning of a deal, rather than waiting and finding out that something just doesn’t jive. Purview For Mortgage Brokers helps you do just that.
Find out more today by visiting http://purviewforbrokers.ca/.