1. General Standards
Amres Bridge Lending and its various affiliates/subsidiaries (commonly referred to as "Amres" throughout this UPG) acquires business purpose loans to credit worthy investors that acquire, rehabilitate or newly construct residential and residential like properties. Without compensating factors such as low LTV and high FICO, Amres borrowers should have a verifiable track record and liquidity. Loans are secured by first mortgage liens and, in most cases, personal guarantees. Amres maintains the highest ethical and professional standards. All underwriting standards not specifically addressed in these guidelines are structured through "common sense" underwriting.
This manual is designed to promote credit underwriting guidance to achieve Amres’s overall financial and risk management objectives. On occasion Amres may move forward with a loan that does not meet all applicable guidelines. Amres retains the authority to review exceptions to these guidelines on a case-by-case basis. If a topic is not addressed within these guidelines, Amres will align with FNMA or FHLMC. Amres encourages a balanced underwriting approach with the expectation that the following characteristics are appropriately and proportionately considered:
1.A. Borrower
The Borrower should have overall financial strength, a reserved tolerance for risk, be of high integrity and have a proven track record of completing projects on time and on budget and repaying debt obligations.
1.B. Collateral
The property should be located in a stable or improving market. The project to be repaired and improved should be well conceived with realistic profitability opportunity. The costs spent to repair the property should create incremental value greater than such costs.
1.C. Structure
The transaction should be priced to reflect the level of inherent risk, and the term of the loan should be appropriate to accommodate adequate improvement and a realistic marketing period. Amres receives a first lien mortgage on each property and all loan approval decisions will consider the elements described above. The ultimate transaction pricing, structure and terms will be determined based on the characteristics of each transaction and a measurement of the transaction’s inherent risks.
2. Defined Terms and Calculations
As-Is Value
For purchase transactions, the As-Is Value is the lesser of (i) the purchase price of the subject property value and (ii) the minimum As-Is value provided on appraisals received. For rate/term and cash-out transactions the As-Is value is the least As-Is value provided on all appraisals received. The As-Is Value must not consider any proposed improvements or market-timing price appreciation.
After-Repair Value (ARV)
The After-Repair Value (ARV) of the subject property is the estimated sale value after renovations and improvements have been completed. When more than one appraisal is received, the minimum ARV should be used in underwriting.
Direct Construction Costs
Direct Construction Costs include third-party costs for labor, general contractor fees, and materials used for construction.
Hard Costs
Hard Costs are defined as the sum of the As-Is Value of the subject property and any Direct Construction Costs associated with the renovation.
𝐻𝑎𝑟𝑑 𝐶𝑜𝑠𝑡𝑠 = 𝐴𝑠 𝐼𝑠 𝑉𝑎𝑙𝑢𝑒 + 𝐷𝑖𝑟𝑒𝑐𝑡 𝐶𝑜𝑛𝑠𝑡𝑟𝑢𝑐𝑡𝑖𝑜𝑛 𝐶𝑜𝑠𝑡𝑠 Value-Add Soft Costs
Value-Add Soft Costs may include indirect construction and transactional costs such as architectural, engineering, environmental, and legal fees. Permits, entitlements, and legal documentation associated with change of property use (e.g. condo conversion) may also be considered Value-Add Soft Costs.
Total Project Costs
Total Project Cost is defined as the sum of Hard Costs and Value-Add Soft Costs.
𝑇𝑜𝑡𝑎𝑙 𝑃𝑟𝑜𝑗𝑒𝑐𝑡 𝐶𝑜𝑠𝑡 = 𝐻𝑎𝑟𝑑 𝐶𝑜𝑠𝑡𝑠 + 𝑉𝑎𝑙𝑢𝑒 𝐴𝑑𝑑 𝑆𝑜𝑓𝑡 𝐶𝑜𝑠𝑡𝑠 Loan to Cost (LTC)
Total Loan to Cost (LTC) is defined as to the Total Loan Amount divided by Total Project Cost.
LTC = (Total Loan Amount / Total Project Cost)Day 1 LTC is defined as Origination Date Disbursed Loan Amount divided by Project Costs Spent to Date
Day 1 LTC = (Origination Date Disbursement / Project Costs Spent as of Origination Date)Loan to As-Is Value (LTAIV)
Loan to As-Is Value (LTAIV) is defined as the Origination Date Disbursement divided by the As-Is Value
LTAIV = (Origination Date Disbursement / As Is Value)Loan to As-Renovated Value (LTARV)
Loan to As-Renovated Value (LT ARV) is defined as the following:
LTARV = (Total Loan Amount / After Repair Value)Purchase Price
The Purchase Price of the subject property is the Contract Sales Price less any other contributions (as determined by Amres underwriting).
Gross Profit Estimate
Gross Profit Estimate is defined by the difference After-Repair Value and Total Project Cost of the subject property
Gross Profit Estimate = ARV − Total Project CostsNet Profit Estimate
Net Profit Estimate is defined as Gross Profit Estimate minus 6% of ARV minus the estimated debt service for the estimated loan duration.
Gross Profit Estimate - (ARV * 6%) - (Annualized Interest Payments * (Hold Time / 12))Cash-on-Cash Gross Profit Return
Cash-on-Cash Gross Profit Return is defined as Gross Profit Estimate minus 6% of ARV divided by Total Project Costs
(Gross Profit Estimate - (ARV * 6%))/Total Project CostsCash-on-Cash Net Profit Return
Cash-on-Cash Net Profit Return is defined as Net Profit Estimate divided by the difference of Total Project Costs minus Total
Loan Amount Requested
Net Project Estimate / (Total Projects Costs - Total Loan Amount)3. General Lending Criteria and Terms
Amres offers business purpose loans to credit worthy investors that acquire, rehabilitate or newly construct residential properties.
3.A. Origination
Loans will be approved by Amres’s Investment Committee. If a loan is referred to Amres by an approved Referral Partner (broker), Amres may pay a “finder’s fee” as determined at the time of submission and agreed upon fee agreement. Amres may also pay an “administration fee” as defined in an executed MLPA where Amres purchased already funded loans. In all cases, loans will be subject to Amres guidelines, policies, procedures, and quality control.
3.B. Priority of Mortgages
All Amres loans will be secured by a valid first mortgage or deed of trust lien.
3.C. Property Types
The primary property held as collateral will be non‐owner occupied. The properties may be currently uninhabitable. Specific property types are as follows:
3.C.1. Single Family Residential
This includes properties with 1‐4 units that are attached and/or detached. Single family properties with rental purpose should follow the debt yield requirements in 3.C.2 below.
3.C.2. Multi‐family Residential/Mixed Use
Properties that include five or more units or properties with residential space of more than 50% of the total property sq. ft. space that meet minimum Debt Yield requirements as shown below.
3.C.3.a Gross Potential Rent (GPR)
Lessor of annualized in place rent as verified with lease agreement and proof of most recent month rent received or annualized market rent as identified in a market rent addendum on applicable valuation report completed through an approved vendor listed in Appendix A.
3.C.3.b. Underwritten Net Cash Flow (NCF)
= GPR - (Operating Expense % x GPR)
ARV Per Unit (Rehab Loans) or “As Is” Value Per Unit
(Stabilized Bridge Loans)
Operating Expense %
Minimum Debt Yield (NCF / Total Loan Amount) *
1
< $150K
45%
7.00%
2
$151K - $500K
40%
6.00%
3
$501K +
35%
5.00%
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*Exceptions considered on a case by case basis with compensating factors
3.C.3. Low-Rise/High-Rise Condominium
Loans on condominium properties will be considered, however in many cases Amres may require a higher down payment on condominium loans.
3.C.4. Modular Homes
Home must be completely manufactured and properly secured on the property. The home must be high quality and comply with the Federal Manufactured Home Construction and safety standards as well as local ordinances.
3.C.5. Mobile Homes and Cooperatives
will not be considered for financing.
3.D. Product Categories
All transaction types contemplated within this UPG fall under the following 3 product categories:
3.D.1. Fix/Flip
Six (6) to Twenty Four (24) months in duration.
3.D.2. Ground Up Construction (GUC)
Six (6) to Twenty Four (24) months in duration.
3.D.3. Bridge
Six (6) to Twelve (12) months in duration.
3.E. Term Extensions
Loan term extensions will be considered upon the request of the Borrower or as contractually required under the relevant loan documents. If discretionary extensions, such extensions will be approved by Amres and will be considered in one to three month increments, not to exceed a total extension period of twelve months.
3.F. Loan to Cost / Loan to Value Ratios
Maximum loan amount per asset will generally be equal to: A. the lower of 85% of the As Is Value, plus 85% of Total Project Costs, or B. 75% ARV. In some cases, Amres will use the As‐Is value as the After‐Repair value (e.g. a cash out refinance on a completed property or a loan without construction draws).
3.G. Borrower Equity
Amres generally requires that Borrowers contribute at least 15% of the total costs toward every individual loan (refinance exceptions apply). Additionally, Amres’s preferred policy on every loan will be to collect the Borrower equity requirement for the Total Loan Amount at closing for Fix/Flip and GUC. This allows Amres to fund 100% of Refurbishment Loan Disbursement requests made during life of loan and not worry about Borrower liquidity situations to complete the subject property. Exceptions are made on a case-by-case basis as approved by the Investment Committee.
3.H. Product Base Coupons and Origination Points
Amres will determine the appropriate coupon and points based on the credit profile, market, and collateral characteristics of every loan. The specific coupon and points for all loans will be derived from the Amres Bridge Loan Matrix but may also differ if proposed by the Business Development Team as disclosed on updated Product Rate Sheets, subject to Investment Committee Approval for loans with higher risk.
3.I. Amortization
Loans will be made on an interest only basis.
3.J. Payment Terms
Interest is generally payable on the first day of each month, with interest calculated and payable in arrears. Principal is payable on the earlier of the maturity date of the note or the date on which the indebtedness thereunder becomes immediately due and payable. The due date of the first payment under the loan will be no more than 60 days from the date of the note. The note will not permit negative amortization. In some cases, a portion of the interest may be prepaid or held in escrow or paid upon maturity
3.K. Maximum Loan Amount
The maximum loan amount for any property types will be $3,500,000. However, Amres investment committee may consider loans on a case by case basis up to $40,000,000. Amres will also limit total loans to one Borrower as defined in section 5.
3.L. Minimum Loan Amount
The minimum amount for any 1-4 unit property loan is $100,000 (less than $100K approved on a case-by-case basis) for Fix/Flip and Bridge. A minimum of $250,000 for any single loan applies to GUC and 5+ multifamily.
3.M. Minimum Interest
Loans can be repaid in part or in full at any time. A minimum of three (3) Months interest is required. Anything less would require exception approval. If a property is multi‐family, a minimum of four (4) months interest will be required.
3.N. Licensing
Amres’s origination partner will be appropriately licensed, if required, in any state where a loan is being made. Confirmation will be part of the origination partner onboarding process.
4. Underwriting Process
Amres loans will be fully underwritten in house prior to any clear to close being issued and table funded loans will be reviewed in parallel between Amres and their origination partner.
4.A. Borrower Interview - Know Your Counterparty ("KYC")
Amres’s origination partner will conduct an interview (typically over the phone) with the prospective Borrower to obtain detailed information on the background, skill set, experience, and business plan of the Borrower.
4.B. Required Borrower Information
4.B.1
Driver's license or acceptable government issued identification (if natural person)
4.B.2
Background Check report(s) (Criminal/AML/OFAC/Patriot Act/Etc.)
4.B.3
Credit reports, from a nationally recognized credit reporting agency, on all Principals in accordance with section 5.A. (No older than 90 days at time of Borrower approval)
4.B.4
Track record report covering properties purchased, repaired, sold, or rented with supporting HUD’s or other verification
4.B.5
Complete Bank/Asset Statements. At the time of the Borrower approval, Amres will require the most recent 2 months statements
4.B.6
Entity Formation Docs (if applicable)
4.C. Age of Documents
Amres will require updated documents set forth in sections 4.B as appropriate, no later than 90 days of Borrower approval date. For repeat borrowers, such information will be updated annually at a minimum.
4.D. Required Property Information
Amres requires the following documentation for each property to be financed:
4.D.1
If purchase transaction, purchase agreement or Trustee Receipt (if applicable)
4.D.2
Copy of Title Commitment/Policy ((Lenders (including assigns) and owners))
4.D.3
Proof of hazard and/or flood, if in a FEMA declared flood hazard area, insurance in an amount equal to the lesser of 100% replacement cost or the note amount. – See Section 6 of this UPG for mortgagee clause info
4.D.4
Appraisal (from approved third party), showing As‐Is and After‐Repair value to include interior/exterior photographs.
4.D.5
Construction/Refurbishment Budget (if applicable)
4.D.6
Warranty Deed showing transfer of property to Borrower (if applicable)
4.D.7
Leased Property Documents (if applicable)
4.D.8
Condo questionnaire and master insurance policy if condo
4.D.9
For non-purchase transactions, HUD-1/Closing Statement if purchased within 12 months of application
4.D.10
If GUC, heavy fix/flip rehab and/or structural modifications occurring:
5. Underwriting Guidelines
5.A Borrower Underwriting
Amres will review the background of (i) all parties which control the borrower and (ii) any party which owns 20% or more of the borrower directly or indirectly (collectively the “Key Principals and Entities”). Amres requires background checks on all Key Principals and Entities described below including criminal history, OFAC, litigation, bankruptcy, judgments and lien searches.
5.A.1 Borrower Types
Ownership must be fee simple only except in geographic regions where ground leases are the standard for that region and must be in the name of the individual Borrower, Trust or Business Entity. Title may be in the name of the Borrower(s) or an affiliated borrowing entity provided the proper documentation is verified. Revocable and Irrevocable trusts may only be considered on an exception basis and provided the Note and Mortgage are executed by the trustee. Most Amres loans including, but not limited to loans to corporations, limited partnerships or other entities generally require recourse to the Guarantor. Non-recourse loans will be considered on a case-by-case basis and exceptions are rarely granted.
5.A.2 Borrower Residency
Borrowers can be U.S. Citizens, Permanent Residents, Non‐Permanent Resident Aliens or a Foreign National that is a resident of the United States. Non‐Resident Foreign Nationals will be considered on a case‐by‐cases basis.
5.A.3 Borrower Equity Contribution
Amres underwriters will validate that the Borrower has contributed the minimum equity contribution. As part of evaluating the Borrower equity contribution, the Amres underwriter will review the source of recent large unusual and/or undocumented deposits (if applicable). The general policy states that Amres will collect the Borrower Equity at closing for Fix/Flip and GUC which mitigates Borrower liquidity risk as it relates to project refurbishment and completion.
5.A.4 Maximum Loan Exposure to One Borrower
Amres will closely monitor total Borrower loan exposure. At no point shall total principal balance exposure to any one Borrower exceed $20,000,000 (exceptions approved on a case-by-case basis for Tier 1 borrowers).
5.A.5 Borrower Credit Guidelines
Amres will consider the general creditworthiness of a Borrower, and any Guarantor, to determine a Borrower’s ability to repay the loan according to its terms. Such considerations are viewed as part of the overall credit approval profile, which will include consideration of equity contribution to satisfy the loan‐to‐value ratios, Borrower and Guarantor liquidity, track record and experience, and credit history. Additional collateral and other credit enhancements may be considered to augment and strengthen a Borrower’s overall credit profile (e.g. holding interest and/or repair funds in escrow, requiring additional down payment, or adding additional collateral). The following are to be used as guidelines to determine Borrower and Guarantor credit worthiness:
5.A.5.1
Borrower shall have a FICO score of no less than 600. Anything below 600 would require exception approval from Amres as an exception with mitigating factors.
5.A.5.2
Borrower is required to demonstrate their liquidity position and shall have liquid assets (cash,
marketable securities and/or verified income) of at least the amount equal to their equity contribution as set forth in section 3.G. and, at a minimum, 3 months interest based on total loan amount. This calculation occurs at the time of borrower or property approval. Amres reviews 2 months’ statements (in limited cases our underwriter may accept fewer months) of the accounts that are needed to satisfy the calculation of the above. Cash out proceeds may apply. The need to verify additional liquidity will be on a case by case basis.
5.A.5.3
The Borrower generally will have been discharged for at least two years from all types of bankruptcy and four years from foreclosure, short sale and/or deed in lieu at the time of approval. Any deviation would require exception approval from Amres Investment Committee.
5.A.5.4
The Borrower is free of any violent crime and financial related felony charges. Also free from material open judgments and material pending litigation.
5.A.5.5
The Borrower must not have been 60 days late on any mortgage payment during the past 24 months. Any deviation would require exception approval from Amres Investment Committee.
5.A.5.6
Borrower Experience calculations will be applied to determine coupon, fee and advance rate structures. The current tiers are as follows:
Borrower Experience
Experience Level
# Projects Completed (Three Year)
$ Projects
1
Experienced
4+
OR
$5,000,000
2
Limited Experience
2 - 3
OR
$2,500,000
3
No Experience
0 - 1
OR
$0
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LTC/LTARV
Experience Level
Light1
Column 3
Medium2
Column 5
Heavy3
Column 7
No Rehab (Bridge)
Column 9
Column 10
New Construction
Column 12
1
LTC
LTARV
LTC
LTARV
LTC
LTARV
Purchase
Rate Term
Cash Out
LTC
LTARV
2
Experienced
85
75
85
75
85
75
75
75
70
85
70
3
Limited Experience
85
75
85
70
80
70
75
70
65
80
70
4
No Experience
80
65
75
65
75
60
70
70
65
N/A
N/A
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5.A.6. Personal Guaranty
In most cases, Amres will obtain a personal guaranty from any individual that directly or indirectly has an ownership interest of 20% or more on every loan, where legally permitted, other than loans made to a Fund or non‐ profit organization. A minimum 51% entity ownership guarantee is required. In addition, loans to experienced borrowers, at Investment Committee approval, may be made without personal guaranty from the principal natural person sponsor (but only with rare acceptance).
The term “Fund” shall mean any fund or any similar entity or vehicle which A. aggregates pools of capital from investors for the purpose of investing such capital and B. is managed by a subset of such investors or by professionals on behalf of such investors. In all cases where a loan is made without a guarantor, the down payment will be increased by at least 10% and the After-Repair Value LTV will not exceed 65%. Amres will carefully evaluate the quality and financial condition of each Borrower and guarantor. In some cases, a greater down payment (or escrow of funds) may be required to compensate for guarantor financial limitations. Guarantees must be personally signed by the guarantor. A Power‐of Attorney (POA) is not acceptable.
5.A.7. Borrower Experience
The primary method of verification of Borrower experience will be satisfied by reviewing HUD statements, Tax Returns, MLS data, county records, or other verifiable sources. In most cases, the Borrower will satisfy the following minimally acceptable underwriting guidelines:
5.A.7.1
The borrower should have at least 1 year of verified acceptable real estate experience. Such experience should include real estate investing; managing or owning investment properties; a licensed realtor; or operating as a licensed contractor or builder (this would include building or performing a major renovation on his/her personal residence if such person was the general contractor).
5.A.7.2
The Borrower has access to reputable contractors to successfully complete existing properties under repair plus any new properties being financed.
5.A.7.3
The Borrower has demonstrated an ability to create substantial value through the successful process of purchasing, repairing and selling or renting properties.
5.A.7.4
The Borrower does not currently own a substantial back log of inventory.
5.A.8. Fix/Flip Product Category
Amres will acquire Fix/Flip loans provided that all underwriting guidelines specified herein are adhered to, superseded only by the minimally acceptable underwriting guidelines described below:
5.A.8.1 Maximum Loan to Cost / As Is Value
Maximum loan amount per asset will generally be equal to the lower of 85% of the (i) purchase price or (ii) the As-Is value of property, plus 85% of Direct Construction Costs and Value-Add Soft Costs. For refinances, the initial advance will be determined by the lower of the property purchase price and As-Is appraised value if such property has been owned less than 1 year from the date of application. If the property has been owned at least 1 year from the date of application, the As-Is appraised value will be used. In some cases, Amres will use the As‐Is value as the After‐Repair value” (e.g. a cash out refinance on a completed property or a loan without construction draws).
5.A.8.2 Maximum After‐Repair Value
The maximum percentage of ARV is generally capped at 75% ARV.
5.A.8.3 Loan Term
Six (6) to Twenty Four (24) months.
5.A.8.4 Minimum and Maximum Loan Size
The minimum loan amount shall be no less than $100,000 for any 1-4 unit bridge or Fix and Flip and no less than $250,000 for any ground up construction or 5+ multi-unit transaction. The maximum loan amount shall be no greater than $3,500,000 for any single transaction. Exceptions may be requested up to $40m.
5.A.9. Ground Up Construction (GUC) Product Category
Amres will underwrite and close new construction loans for single family and multi‐family properties provided that all underwriting guidelines specified herein are adhered to, superseded only by the minimally acceptable underwriting guidelines described below:
5.A.9.1
The land/lot must be fully entitled in accordance with the proposed construction project and developed with all required utilities and road infrastructure. The land must be owned free and clear of liens.
5.A.9.2
Prior to Amres funding, Borrower shall submit architectural/specifications plans, sworn statement budget, and verification that building permit application and entitlement was properly submitted/approved.
5.A.9.3 Maximum Loan to Cost / As Is Value
Maximum loan amount per asset will generally be equal to the lower of 85% of the (i) purchase price or (ii) the As-Is value of property, plus 85% of Direct Construction Costs and Value-Add Soft Costs. For refinances, the initial advance will be determined by the lower of the property purchase price and As-Is appraised value if such property has been owned less than 1 year from the date of application. If the property has been owned at least 1 year from the date of application, the As-Is appraised value will be used.
5.A.9.4 Maximum After‐Repair Value
The maximum percentage of ARV is generally capped at 70% ARV.
5.A.9.5 Loan Term
Six (6) to twenty four (24) months.
5.A.9.6 Minimum and Maximum Loan Size
The minimum loan amount shall be no less than $250,000. The maximum loan shall be no greater than $3,500,000 for any single transaciton. Exceptions may be requested up to $40m.
5.A.9.7 Guaranteed Maximum Price Contract
Amres may require, if the total construction budget of a project exceeds $1,000,000, a Maximum Guaranteed Price “GMP” Contract from the General Contractor.
5.A.9.8
All major subcontracts may be assigned to Amres, at Amres option.
5.A.9.9
Amres will require Builders Risk and general liability insurance, including workers’ compensation.
5.A.9.10
Bonding Requirements – Amres may require that all contracts that exceed 25% of the total budget be bonded.
5.A.9.11
Amres will require, at borrower’s expense, an upfront construction feasibility review and/or onsite inspection for all new construction loan transactions.
5.A.10. Bridge Product Category
Amres will acquire Bridge loans provided that all underwriting guidelines specified herein are adhered to, superseded only by the minimally acceptable underwriting guidelines described below:
5.A.10.1 Maximum Loan to Cost / As Is Value
Maximum loan amount per asset will generally be equal to the lower of 75% of the (i) purchase price or (ii) the As-Is value of property. For refinances, the initial advance will be determined by the lower of the property purchase price and As-Is appraised value if such property has been owned less than 1 year from the date of application. If the property has been owned at least 1 year from the date of application, the As-Is appraised value will be used.
5.A.10.2 Loan Term
Six (6) to Twelve (12) months.
5.A.10.3 Minimum and Maximum Loan Size
The minimum loan amount shall be no less than $100,000 for a single property. The maximum loan amount shall be no greater than $3,500,000 for any single transaction. Exceptions may be requested up to $40m.
5.B. Property Underwriting
5.B.1. Appraisal / Valuation
Amres requires a third-party Uniform Residential Appraisal Report (“URAR”) from an approved valuation vendor to establish the current value for any collateral being pledged as part of the loan request. Amres may require an additional automated valuation model (“AVM”) or other valuation product when necessary or when origination partner obtains valuation reports from non-approved Amres vendors. For a 1-4 unit, if the loan amount and/or property value is great than $2,000,000 two separate appraisals will be required. All appraisals must indicate the As‐Is value and the After‐Repair value, where applicable and take into consideration the budget/SOW for the contemplated project. All appraisals will be carefully reviewed by a Amres underwriter.
5.B.2. Appraiser Qualifications
All appraisers retained by Amres shall be licensed or qualified as independent fee appraisers and be certified by or hold designations from one or more of the following organizations: The Federal National Mortgage Association (“FNMA”), the Federal Home Loan Mortgage Corporation (“FHLMC”), the National Association of Review Appraisers, the Appraisal Institute, the Society of Real Estate Appraisers, and/or M.A.I.
5.B.3. Appraisal Aging
Appraisal must be no more than 90 days old at time of Amres acquisition. If greater than 90 days a recertification must be completed by the original appraiser or a desktop analysis may be provided by one of Amres’s approved vendors.
5.B.4. Appraisal Report Disclosures
The following guidelines describe items that should be contained within the appraisal report:
5.B.4.1 Legal Description
A complete legal description of the subject property should be noted on the appraisal report. The legal description provided within the appraisal report must conform to the information within the application, the purchase agreement and the preliminary title report.
5.B.4.2 Neighborhood Analysis
Market strength can be measured by a review of the neighborhood comments. The neighborhood should be acceptable to a sufficient number of potential purchasers to support an active resale market. The appraisal should address the general market conditions affecting values within the subject market area. Local economic climate and supply and demand for housing have a direct effect on property values and available methods of financing. The appraisal should identify the local prevailing financing practices and the specific financing terms of the subject property and compare the two.
5.B.4.3 Location
The subject property may be located in an urban, suburban or, in extremely rare cases, rural area. However, loans must be secured by a property that is residential in nature based on the description of the subject property, zoning, and the present land use. All properties must be readily accessible by roads that meet local standards and must have adequate utilities available and in service. Certain factors relating to a property’s location require special consideration. For example, properties in resort areas that attract people for seasonal or vacation use are acceptable only if they are suitable for year-round use. The appraisal must consider the present or anticipated use of any adjoining property that may adversely affect the value or marketability of the subject property.
5.B.4.4 Condominium Concentration
Amres may finance borrowers that acquire more than one unit of a condominium project. In these cases, the Amres underwriter will carefully consider the risk related to securing two or more units in the same project. Extra attention will be given to the additional concentration risk related to valuation, exit strategy, and GSE eligibility. These loans may require larger down payments and lower LTVs.
5.B.4.5 Area Density
The appraisal should provide comments for areas that are less than 25% developed. The percentage is based on the amount of land available for development. If the area has a high percentage of land that is unavailable for development, such as government owned land, the appraisal will neither provide comments nor include this land when determining the percentage of land available for development. Areas that have been developed between 25% and 75% are desirable if they show a steady growth pattern.
5.B.4.6 Growth Rate
The growth rate reveals how the neighborhood is developing. If it is developing slowly, the appraisal should comment on the contributing factors. Consideration should be given to the effect of the slow growth on the subject property’s marketability.
5.B.4.7 Property Values
Property values should be stable or increasing. If property values are declining, the appraisal should comment on the contributing factors. If the decline is likely to continue, serious consideration should be given to the property’s acceptability. In any case when the property values are declining, maximum financing will generally not be considered.
5.B.4.8 Supply and Demand
Appraisal findings of a market shortage or in balance conditions are preferable. An oversupply of housing is not desirable; it signifies that houses are selling slowly, with considerable competition and the potential for a decrease in value.
5.B.4.9 Marketing Time
Marketing time is the average time it takes for a reasonably priced property to sell in the subject’s neighborhood. The appraisal must address marketing trends within the subject’s neighborhood. A protracted marketing time may be an indication of oversupply, declining values, or limited marketability. Marketing times over 6 months will require careful analysis.
5.B.4.10 Present Land Use
Present land use is shown as an estimated percentage of each type of property in the neighborhood, with all the property types totaling 100%. In general, dwellings are most likely to maintain their value in neighborhoods where comparable residencies predominate. A one to four-unit property in a neighborhood with project apartments and/or commercial or industrial development may lack the stability required to sustain value over a long period of time. However, this can be offset by value‐enhancing factors that increase the purchaser’s motivation to buy. Value‐enhancing factors include easy access to employment centers, improved neighborhood appearance, and a high level of community activity. Older neighborhoods frequently reflect a successful mixing of commercial services such as grocery stores, other neighborhood stores and multi‐family properties.
5.B.4.11 Land Use Change
When the appraiser indicates the area is undergoing a land use change (for example, from a one to four-unit residential neighborhood to a mixed‐use neighborhood), careful consideration will be given to whether maximum financing is justified. Land use change raises the question of a possible detrimental effect on residential values. The appraiser should discuss the potential impact on marketability and overall buyer appeal.
5.B.4.12 Price/ As‐Is Value/ After‐Repair Value
If the As‐Is indicated value of the subject property is more than 5% above or below the range for properties in the proximity, the appraisal should comment as to the anticipated effect on the subject property’s marketability and appeal. If the property has a sales price or As‐Is value that significantly exceeds the prevailing upper price level, the loan terms should generally be more conservative because the property may not be acceptable to the typical buyer. Furthermore, if the property’s After‐Repair value significantly exceeds the prevailing values, the loan terms should generally be more conservative because the property may not be acceptable to the typical buyer.
5.B.4.13 Predominant Value
The predominant value should be the appraiser’s best determination of the most frequently occurring residential sales within the subject property’s neighborhood.
5.B.4.14 Age
It is important that the age of the subject property be within the general range of the neighborhood. A property falling outside the general age group must be given special consideration. Unless there is strong evidence of long‐term neighborhood stability, a new dwelling in an old neighborhood will carry marginally increased risk. Conversely, an old dwelling in a newly developed area is generally acceptable if the house, when modernized, will conform to neighborhood norms. If a property’s age falls outside of the range, the appraiser should comment regarding the anticipated effect on the property’s marketability and appeal.
5.B.4.15 Over Improvement
The Amres Underwriter will consider whether a property in an urban area is among those being rehabilitated. Demand for rehabilitated urban houses is increasing; a house should not be considered over‐improved if there is a strong market interest as evidenced by the existence of comparable properties. Often, an over‐improvement can be identified by:
A sale price or indicated value that exceeds the neighborhood range
5.B.4.16 Neighborhood Comments
The appraisal should describe the following:
The neighborhood boundaries and characteristics,
5.C. Property Underwriting Confirmations
As part of the underwriting process, the Underwriter will confirm the following items:
5.C.1. Advance Formula
In order for the loan to be approved as presented to Amres, the Purchase Price/As-Is and/or the After-Repair value must support the loan advance formula as indicated herein.
5.C.2. Trading Market
The Amres Underwriter will thoroughly research the market area of the property to evaluate current and local market conditions.
5.C.3. Clean Title
The Amres Underwriter will confirm that the collateral property is free of any encumbrance or lien, other than the lien of the origination partner’s security instrument.
5.C.4. Back Taxes
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