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n NJ standard real estate contract form, does a mortgage contingency IMPLY the house must be appraised for at least the sale price?
Here is the clause in the standard contract: "IF THE MORTGAE LOAN HAS NOT BEEN ARRANED, OR IF HTE BUYRER HAS NOT NOTIFIED SELLER OF BUYER'S DECISION TO COMPLETE THE TRANSACTION WITHOUT OBTAINING A MORTGAGE COMMITMENT, ON OR BEFORE JAN. 01, 2014, THEN EITHER BUYER OR SELLER MAY VOID THIS AGREEMENT BY WIRTTEN NOTICE TO THE OTHER PARTY."
If the house is appraised at lower value than the sale price, does this mean the bank will not loan me the money, thus the mortgage contingency will be triggered? If that is the case, what is my option?
That seems to have nothing to do with appraisal. It seems to reference a cash purchase.
It means: get lending in place or notify that you are a cash buyer. Other line items will reference a Loan Commitment date, or Mortgage Contingency date.
Nothing is implied, it's all explicit. There should also be an Appraisal contingency which discusses the fact that the home must appraise at or above the price.
That seems to have nothing to do with appraisal. It seems to reference a cash purchase.
It means: get lending in place or notify that you are a cash buyer. Other line items will reference a Loan Commitment date, or Mortgage Contingency date.
Nothing is implied, it's all explicit. There should also be an Appraisal contingency which discusses the fact that the home must appraise at or above the price.
Sorry, I missed some info. Right before this clause, the contract states that I will put 20% down, and get $400k loan. So if the appraisal value is lower than the sale price, $500k, then will the bank still loan me 400k?
If the appraisal is lower than the price, and no negotiation results in a reset of the price to match the appraisal, the loan is then based upon the lower number shown on the appraisal.
For example, if you are putting 20% down, and the appraisal comes in at $450,000 instead of $500,000, you would have to pay $50,000 at closing, and then on top of that put 20% down on the $450,000 in order to maintain the terms of the loan.
It is about the percentage of down payment on the lower of the two numbers, appraisal or price.
Using your example, if the appraisal comes in at $450k, instead of selling price $500k, then the bank is only willing to lend me $360k instead of 400k. That means I can not get the $400k explicited stated mortgage committment in the contract from the bank, thus it does trigger the mortgage contingency clause? Am I right on this?
The appraisal coming in below the price, in most situations, triggers it. But some markets are very hot, and the Cash-Buyer market has triggered removal or absence of an appraisal contingency. You have to read it on your specific contract.
Using your example, if the appraisal comes in at $450k, instead of selling price $500k, then the bank is only willing to lend me $360k instead of 400k. That means I can not get the $400k explicited stated mortgage committment in the contract from the bank, thus it does trigger the mortgage contingency clause? Am I right on this?
Are you trying to get out of the contract if the appraisal comes in lower?
If you are trying to buy the house and work out 'what if' scenarios, you need to talk to your lender/bank. You might have the option to obtaining a different type of loan at less than 20% down with different interest rate and cost if the seller agrees. Instead of a 80% loan you might only be able to get a 90% loan to value.
Sorry, I missed some info. Right before this clause, the contract states that I will put 20% down, and get $400k loan. So if the appraisal value is lower than the sale price, $500k, then will the bank still loan me 400k?
No you would have to come up with the difference between the appraised value and actual purchase amount you agreed to buy. That's part of the reason houses fall out of escrow because of the difference in appraised value vs agreed sale price and the buyer having to come up with that extra money in order for the purchase to happen. And some buyers are stretched and can't raise the extra.
Either you would have to come up with the extra difference or seller will have to lower price to appraised value or somewhere are one there to make the sale happen
Are you trying to get out of the contract if the appraisal comes in lower?
If you are trying to buy the house and work out 'what if' scenarios, you need to talk to your lender/bank. You might have the option to obtaining a different type of loan at less than 20% down with different interest rate and cost if the seller agrees. Instead of a 80% loan you might only be able to get a 90% loan to value.
I just want to have the option to walk away without losing my deposit money if the appraisal is much lower than the sale price, and I don't want to bring extra money to fill the gap myself.
I just want to have the option to walk away without losing my deposit money if the appraisal is much lower than the sale price, and I don't want to bring extra money to fill the gap myself.
It seems like you're trying to avoid an appraisal contingency in the contract. Why? You clearly want the advantages of an appraisal contingency, so write one in.
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