Do you remember the Savings and Loan Crisis back in 1986, when over 1,000 SL’s went bankrupt?
As a result, home loans of up to 80% LTV are common on four-plexes
MAI Appraisers are like the CPA’s of the appraisal industry. They are the top of the food chain. They are most highly trained and experienced commercial real estate appraisers in the industry.
MAI Appraisers will typically charge between $4,000 to $10,000 for an appraisal assignment. For most commercial property owners, borrowing from a bank, the MAI appraisal will cost you between $4,000 and $4,500.
Borrowers, brokers, and mortgage brokers should never order the appraisal themselves. If they do, the cheapest commercial lenders will NOT be able to use it.
They lost billions of dollars, in large part due to bad appraisals. Developers were North Carolina installment loans ordering the appraisals themselves from crooked MAI appraisers. They would shop an appraisal assignment until a MAI Appraiser promised to bring in the appraisal at the value the developer wanted. The joke back in those days was that MAI stood for “Made As Instructed.”
The law that eventually cleaned up the appraisal industry was the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 – pronounced FIRREA (like diarrhea).
You might say that 80% loan-to-value (“LTV”) is the standard LTV for home loans, sort of the “default mode” for such loans
After the passage of FIRREA, state laws were passed to license and regulate real estate appraiser. The appraisal industry became far more professional and ethical, and the prestige of the Appraisal Institute itself recovered its lustrous reputation.
But let’s get back to the issue that a borrower or a broker must never order the appraisal themselves. Under FIRREA, it is illegal for an insured bank or savings and loan association to accept and use an appraisal ordered by a borrower or a broker.
It is too late? Are you stuck with a $2,000 or $4,000 appraisal that no bank will accept? My own hard money shop, Blackburne Sons, will often accept commercial real estate appraisals ordered by competing lenders.
Heavens, I miss ‘ole Al Bundy. Katie Sagal got hit by a car andhospitalized this month while walking across the street. She’s okay.
As a general rule, commercial real estate lenders are more conservative than conventional home loans lenders. Conventional home loans lenders will regularly make purchase money first mortgages that are 80% loan-to-value.
By the way, a conventional home loan is one where the loan is not guaranteed by the government. Examples of government-guaranteed home loans include FHA loans and VA loans. When the government is willing to guarantee the lender against loss, obviously the lender will increase its loan-to-value ratio.
Earlier I used the expression, purchase money first mortgage. A purchase money first mortgage is one where the loan is used to buy the property, as opposed to a refinance, where the loan proceeds might be used to start a business or pay for your kid’s college tuition.
The standard or “default mode” for a purchase money first mortgage to buy an apartment building is a loan of 75% loan-to-value. If you shop dozens of small banks and credit it unions located close to the property that you are buying, it would not be shocking if one of them – because they happened to be flush with cash – would offer to make you an apartment loan of 80% loan-to-value.
Is a triplex an apartment building? No. Multifamily properties have five or more rental units. Loans on duplexes, triplexes, and four-plexes are actually considered home loans. Why? Both Fannie Mae and Freddie Mac will buy loans on one-to-four family dwellings.