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IF you are putting down 20% and expecting to borrow 80% LTV (Loan To Value), the bank will lend 80% of their appraiser's opinion of value.
IF the $265,000 house appraises at $240,000, your loan will be $192,000 and your down payment would be $73,000.
That is pretty much how it has worked historically.
This is something I have never understood. Let's say the buyer agrees to pay $265,000 and the appraisal is $240,000 as in Mike's scenario. The purpose of the down payment is to ensure than the buyer has put sufficient money of his own into the property that he is unlikely to walk away from his financial obligation to the bank. So 20% of $240,000 being $48,000, let's imagine that the buyer is willing to put $48,000 down on the $265,000 price tag. This changes the percentage that the bank sees to a 10% down payment on the $240,000. But so what? This is often acceptable to a bank if the buyer has good financials. And the buyer has still used $48,000 as a signal to his commitment level. Beyond that, the buyer has shown that the value of homes in the area might just be going up.
I don't think it's about commitment level but reducing financial risk if the bank has to foreclose.
One time I bought a house after being in a bit of a bidding war. I thought it might not appraise for the offer price and I was right - wound up negotiating a price reduction for all but $1K of the short fall. Not something I'd probably do again, but at the time it worked out.
Given the house has been updated, that tells me the house is aged. How is the age/condition of the roof, siding, HVAC, crawlspace? Did they just do the cosmetics and flash or have the systems and components been maintained and replaced as necessary. Do they have receipts and proof? I see houses every week that have aesthetic upgrades that pull in the buyers and the roof/HVAC/Water heater are all 15-20 years old and the crawlspace is a wreck. Just something to think about when buying at the top of the market, the selling price is often just an entry fee.
This is the situation with that house and they made the pictures look better than it actually does. The HVAC and roof are original and are at 20+ years. The hardwood is worn out too. There is a contingent offer on it, so the realtor said she will keep tabs on it for us and we'll see the outcome. We weren't ready to put in an offer.
Location: River's Edge Inn, Todd NC, and Lorgues France
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Quote:
Originally Posted by luv4horses
This is something I have never understood. Let's say the buyer agrees to pay $265,000 and the appraisal is $240,000 as in Mike's scenario. The purpose of the down payment is to ensure than the buyer has put sufficient money of his own into the property that he is unlikely to walk away from his financial obligation to the bank. So 20% of $240,000 being $48,000, let's imagine that the buyer is willing to put $48,000 down on the $265,000 price tag. This changes the percentage that the bank sees to a 10% down payment on the $240,000. But so what? This is often acceptable to a bank if the buyer has good financials. And the buyer has still used $48,000 as a signal to his commitment level. Beyond that, the buyer has shown that the value of homes in the area might just be going up.
Buyer is paying cash to make up the different between contract price and appraisal price, so $25,000. That leaves $23,000 of the $48,000 for the downpayment. 23,000/240,000 = ~10% (rounded up)
Only in rare cases is a property "worth" 10% more than appraisal. Further, rarely is a property worth 5% or more less than what is achieved in a multiple offer situation.
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