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Underwriter requiring upgrades for refinancing

I hope someone can help me understand this.

We bought our home in 10/09 and Wells Fargo financed our loan at 5.25%.  Rates dropped a year later and we did a no-cost refinance again through Wells Fargo in 11/10.  The house went up in value from $625k to $660k. Our rate dropped to 4.875%.  In 10/12 I started the refinance again and locked into a 3.875% rate. 

Our trouble is after the appraisal (which actually brought our value up to $830k), the underwriter is now mandating we do improvements to the property to finalize the loan based off of the appraiser's comments that is being used more like an inspection.  We did not have a garage door on our 2 car garage, so we had to spend $1000 to get a door quickly installed.  Now we are told our heat source is considered "inadequate for the market." We have a gas fireplace insert that heats the area we use the most just fine (and cost $3000), but the underwriter is demanding we put in another heat source for our 1400 square foot home.  We live in the Bay Area of California and it just does not get that cold here. We are not planning on selling the house.

Everything else is in order (LTV ratio, income, credit) and the house is in good condition.  Are the underwriter's actions appropriate? And if not, is there any recourse?
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December 10 2012 - Redwood City
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Answers (6)

Your recourse is, find another lender. And when you do, tell Wells Fargo why they are losing your business.

The thing with the heater is this: Central forced air heat is considered the industry standard right now. The underwriter is trying to 1) protect their investment by trying to force you to upgrade, and 2) trying to get your home up to their standard, likely so they can re-package the loan and sell it on the secondary market.

Your best option is to find another lender. If you need a local referral, let me know. I know a few of them here on the Peninsula.

David
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December 11 2012
Profile picture for Go Huskers
My son was born at Sequoia Hospital in Redwood city and I know the area well. I can tell you that this isn't that uncommon. While there may be a lack of recent sales to support this, you may be successful with a new appraisal and updated space heaters present at the time of inspection. Baseboard heaters would be even better but there has been success with good quality room heaters with modern safety protections.

Having lived in the South bay and currently living in the East bay, there are multiple micro climates that comprise the "Bay Area" and to generalize would be a mistake. From the records I see, the coldest ever in Redwood city was 16 degrees in 1949 and that's hardly common.

I'd urge you to get a second opinion with a broker that can place this with the right lender for you.
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December 10 2012
Profile picture for wetdawgs
Removing the large central heating system sounds like it is the issue (even if it wasn't functioning).   FHA requires that the heating system work and able to heat the house.   I suspect conventional loans have the same requirement.   Therefore, as you removed the central heat and made a different heating choice that is less conventional, the onus may be on your shoulders to show it can meet the requirements.   Ask your lender to give details of the heating requirement.    Even though you plan to live there for a long time, financially it is mainly their home (ouch!) so they can hold you to lending guidelines standards.

Yes, you are having a very warm December and have had since 2009.   Go back two or three years earlier and Dec and Jan had some very cold periods.
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December 10 2012
Profile picture for Go Huskers
Get a new lender and thus a new appraisal.; that would be cheaper than the furnace. You are not being done any favors with a 3.875% rate offer anyway! Start over. 
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December 10 2012
Profile picture for white_wolf71
Thank you for the quick reply.  I guess what I am trying to understand is if  the underwriter can deny us the refinance if we do not upgrade the heat source.  I already told our loan officer that if the appraisal is lower because of this information, that's fine, but to deny us the refinance seems a bit extreme.

It is an older home built in the 1930s.  When we bought the home there was a large central heating system that was at end of life and not in working condition.  It was removed.

It's currently 55 F outside and 75 in the house and the heat is not on.  Good insulation.
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December 10 2012
Profile picture for wetdawgs
Appraisers are being much pickier.    A garage is distinguished from a carport by complete enclosure.  If you didn't have doors, you didn't have a garage you had a carport (and that would have quite a hit on value).

Was the house designed and built without heat?     If the original heating system has failed and you or the previous owners have installed a work around, repair/replacement of the core system is not unreasonable request.

"it doesn't get that cold here"....  tell that to all the people who've had had water pipes burst when there is a week with night time temps hitting the 20s every night.   Yes, it has happened (in this century) and yes I've seen snow flurries in SF.

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December 10 2012
 
Related Questions
Underwriter requiring upgrades for refinancing
Profile picture for David Gowans
Latest answer by David Gowans
December 11 2012 | 6 answers
  • Asked by white_wolf71
  • In Refinance
  • December 10 2012
Mortgage Rates
 
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