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Old 08-24-2013, 06:06 PM
 
Location: The beautiful Rogue Valley, Oregon
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Okay, for purposes of clarity, we will use nice round numbers. Say I agree to pay $250,000 for a house, for which I am putting down $75,000, which means I am seeking a loan of $175,000. Say the house appraises at $225,000. The loan amount I am seeking is still well under the actual value, although the percentage of the house value which is being financed has increased. It was 70% of house value, it is now 77%. But it is still well under the value of the house. (70% of the appraised value would be a $150,000 loan instead of $175,00.)

My understanding is that, unless I come up with an additional $25,000 in cash (or buyer drops price plus I come up with cash), the mortgage co would refuse to lend? I could see if I was seeking a loan much closer to the appraised value, but I am not.

Fortunately this is still hypothetical, but you never know...
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Old 08-24-2013, 08:12 PM
 
Location: Just south of Denver since 1989
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Appraisals are for the sole benefit of the lender. If you are a good credit risk the lender will approve the loan.
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Old 08-24-2013, 08:43 PM
 
Location: Florida -
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Hypothetically, the bank would probably view this as thought it was a $225K property purchase on which you were making a $50K (20-percent) down payment. As such, the 10-percent variance between appraised value and purchase price would probably not stop the bank from giving you an 80-percent, $175K loan. This would be a bigger problem if the variation was greater and/or the down payment is not as significant. (I do not believe that the bank would treat this as a $250K property or consider your full down payment ... including the amount above the appraised value).

However, if the appraisal came back at 10-percent/$25K below the purchase price, I would probably go back to the seller and try to re-negotiate the price down another $25K ... regardless of what the bank did. Ultimately, in this specific case, the final decision of whether to pay $250K for this $225K property, would likely be yours and the seller's, not the bank's.
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Old 08-24-2013, 09:17 PM
 
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Quote:
Originally Posted by jghorton View Post
Hypothetically, the bank would probably view this as thought it was a $225K property purchase on which you were making a $50K (20-percent) down payment.
Which I think could affect your interest rate, depending on the bank.

Quote:
However, if the appraisal came back at 10-percent/$25K below the purchase price, I would probably go back to the seller and try to re-negotiate the price down another $25K ...
Always worth a shot .
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Old 08-24-2013, 10:22 PM
 
Location: Salem, OR
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It isn't an issue. The lender won't refuse to lend unless they are crazy. The lender wants to see at least 20% down, which happens with both scenarios. The only difference is that 25k of your downpayment will go towards bridging the gap between appraised value and purchase price. Which leaves $50k for the 20% down portion of your loan. As long as you are approved for a $175,000 loan amount it doesn't matter. You just walk in with less equity than you intended.

If it came back that low, I would hope you would ask the seller to reduce the purchase price to compensate.
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Old 08-25-2013, 08:58 AM
 
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I don't think that confusion over appraisals is your problem. I think it has to do with loan-to-value ratios and what are the benefits (if any) of having a higher down payment percentage.

Hopefully you can renegotiate your sales price based on the fact that you appear to be paying too much.
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Old 08-25-2013, 09:31 AM
 
Location: The beautiful Rogue Valley, Oregon
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Like I said, this is all hypothetical as the appraisal hasn't come back yet (everything else is done, it is the one single thing holding up final mortgage approval), but I have heard via the realty grapevine that several very recent pending sales have hit this snag in this market, particularly houses in the $225-$300k range.

Looking at houses, I have noticed a 10-15% price premium lately (ie: the last month), particularly as the pool of available houses has dried up, and I suspect the appraisals are not reflecting that.
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Old 08-25-2013, 10:15 AM
 
Location: Downtown Austin
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Quote:
Originally Posted by PNW-type-gal View Post
Like I said, this is all hypothetical as the appraisal hasn't come back yet (everything else is done, it is the one single thing holding up final mortgage approval), but I have heard via the realty grapevine that several very recent pending sales have hit this snag in this market, particularly houses in the $225-$300k range.

Looking at houses, I have noticed a 10-15% price premium lately (ie: the last month), particularly as the pool of available houses has dried up, and I suspect the appraisals are not reflecting that.
ETex2 is right, your question is about loan to value ratio.

On a side note, in Austin, we meet the appraisers for the appraisal and bring an "appraisal package" if we think it might be tight. That way we know the appraiser at least knows which sales comps we are using to justify the price. We also tell them in the cover letter whether we had multiple offers, how many, the number of them that were over list. Also printouts of Pending listings nearby with the contract price that we obtain by calling and asking the listing agent. Appraisers in our area are allowed to use Pending listings now (just 1 or 2 I think if there are not enough recent solds).

Appraisers are looking in a rear view mirror instead of evaluating current activity as Realtors do when pricing. And they are overworked and in a big hurry. Last one I met was doing 5 that day and really appreciated the data and info from the appraisal packet.

Of course we can't and should not "puff" prices. Buyers and their lender rely on the appraisal to confirm value, but the system isn't working if it kills deals between ready and willing buyers/sellers because the market lag hasn't been factored in.

Steve
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Old 08-26-2013, 12:34 PM
 
Location: The beautiful Rogue Valley, Oregon
6,674 posts, read 14,336,474 times
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So the appraisal came back and it is $20,000 over our bid, and contains the note at the bottom about rising prices, noting that in this price range/area/size
Oct-Dec 2012: 97 houses available
Jan- Mar 2013: 71 houses avail
April-June 2013: 27 houses
July -present: 13 houses avail

and that the average time on market has dropped from 3 months to 10 days.
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Old 08-26-2013, 12:43 PM
 
Location: Downtown Austin
5,962 posts, read 14,750,225 times
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Quote:
Originally Posted by PNW-type-gal View Post
So the appraisal came back and it is $20,000 over our bid, and contains the note at the bottom about rising prices, noting that in this price range/area/size
Oct-Dec 2012: 97 houses available
Jan- Mar 2013: 71 houses avail
April-June 2013: 27 houses
July -present: 13 houses avail

and that the average time on market has dropped from 3 months to 10 days.
Just curious, is that still well below the YR 2006 peak value in your area or have value caught up already?
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