As a result of this declaration, lenders are requiring properties in those disaster areas to be reinspected. Any damage must be repaired before the loan can close. Home buyers and sellers in these areas can expect that lenders will send appraisers back out to examine the exterior of the property to see whether there is any obvious storm-related damage.
If damage is evident, the home will have to undergo a full interior and exterior inspection. After any major repairs, another appraisal will need to be conducted. In some cases, where repairs are not of a structural nature, lenders may permit loans to close but with funds held in escrow to cover the costs of making the required repairs.
These steps will take additional time and effort to accomplish. In areas severely affected, such as the New Jersey shore, shortages of power, gasoline, building materials and perhaps even labor will hamper a homeowner’s ability to satisfy lenders’ additional demands. The ability of appraisers to go into a disaster area and perform competent reappraisals of fair market value is also of dubious worth.
Under any scenario, the uncertainty does not bode well for a continued short-term recovery in the housing industry. Over the long-term, however, the immense need for new housing will certainly have a positive impact on rental rates, new-home construction and home renovation, and it will certainly lower the unemployment rate in the construction trades for the coming year.
What does this mean for someone in the process of buying or refinancing? At a minimum, there will be delays and perhaps even denials of pending or even approved loans. Carefully drafted financing and appraisal contingencies should be inserted into all purchase offers. Home buyers and sellers need to prepare for these inevitable delays by postponing moving dates. Home buyers who have to give notice to their existing landlords may want to hold off for 30 or more days.
Home sellers who anticipated having cash from their sales for other purchases may need to look for alternative short-term financing means, such as short-term loans from retirement accounts. Refinancing homeowners seeking cash-out refinancing may need to rethink whether the refinance still makes sense, if the amount of cash-out is severely reduced as a result of a lower appraised value.
In recognition of the additional delays, lenders are extending interest rate locks on approved loans. Lenders are also providing forbearance on mortgage loan payments for those whose home and/or employment have been severely affected by Hurricane Sandy.