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I am a first time home buyer and have a lot of concerns.
I have made a $500 earnest money deposit and currently (will have) a ratified contract tomorrow. Home inspection is next Monday, which is $350. Then comes the appraisal.
I am worried that 1) the home will not appraise at what I am borrowing, thus cancelling the deal
2) My financing will not go through
In situation 1, I have lost $500 earnest money and $350 inspection
In situation 2, I have lost $500 earnest money, $350 inspection, and $400 appraisal fee.
Can anyone ease my mind on this before I drive myself crazy?
It is STANDARD PRACTICE for contracts to specify pretty much every thing you are worried about.
If you are unable to obtain financing THE DEAL IS DEAD, end of story. You get your earnest money back. BTW You put this as #2 but I answered it first because every deal I have done in Illinois (or Wisconsin) has made it clear that the seller wants to know that you are PRE-APPROVED for a mortgage big enough to cover the house at the agreed price. I mean, think about this, if you were NUTS and knew you could only get a mortgage for $100K but you went and made an offer on house at double that the seller would be upset that they took the house off the market. Yes, they'd get to keep to your earnest money if you were dumb enough to give it to them but how crazy would that be? Is there some reason you are NOT pre-approved? Have you talked to lenders BEFORE you went house shopping? Has your situation changed? If something has changed / does change the seller cannot "force" you to buy a house with money that you don't have. Most contracts will have a clause for the seller to be able to attempt to locate financing for you but unless they have connections to lenders / want to do seller financing that is unlikely ESPECIALLY for a first time buyer that 'regular' lenders turned down...
If the home does not "appraise out" the deal is mostly dead. If the seller agrees to lower the price you can write a new contract at the new price and most lenders will be OK with that, after all lower price means less to borrow. What if the seller does not agree to lower price? Technically if you have enough cash to meet the previously agreed to price and still be within the limits of what the lender has agreed to lend you might still be able assemble a new deal but generally that would not make financial sense for a new buyer. Why put more of your money into a deal that this appraisal says in not a fair price?
What about the inspection fee? Well sorry to say that is money out of pocket for MOST deals unless you specifically figured out a way to get the seller to agree to that, which would be pretty odd -- does not really help them if you get inspected or not.
Similarly the appraisal fee would also be a unrecoverable unless you got some agreement on that, which is little less unusual because technically that could be considered "closing costs" which you MIGHT have gotten the seller to agree at closing, though if there is no "closing" then YOU are still on the hook for it. Right?
Seeing as how you DO NOT YET HAVE A RATIFIED CONTRACT I am kind of surprised you have not asked these questions of your BUYERS AGENT or your LAWYER. It is generally a good idea to get these things from them. Do you have any such representation? If not, why not?
I got prequalified just fine but have a lot of contingencies with my credit (score is great, its 805, but some payments in my debt to income ratio are to be excluded because of student loan deferment and I am co-signed on a loan I never made a payment to)
I'm getting a house that is at the top of my budget and hope it will appraise for what I am paying. My agent says it will but I am skeptical..
I am a first time home buyer and have a lot of concerns.
I have made a $500 earnest money deposit and currently (will have) a ratified contract tomorrow. Home inspection is next Monday, which is $350. Then comes the appraisal.
I am worried that 1) the home will not appraise at what I am borrowing, thus cancelling the deal
2) My financing will not go through
In situation 1, I have lost $500 earnest money and $350 inspection
In situation 2, I have lost $500 earnest money, $350 inspection, and $400 appraisal fee.
Can anyone ease my mind on this before I drive myself crazy?
On the other hand, if the home appraises properly and you get your financing, all of the concern will be unnecessary. Worry doesn't help. Since you can't control what happens at this point, my advice would be to just try not to worry. Try to find something to take your mind off of it.
For me, closing was even more upsetting. I don't think I've ever heard of a smooth and easy closing. Mine wasn't, because everyone but me was behind schedule and hadn't finished on time. But with some prodding the closing actually did happen as scheduled.
When they handed me the keys at the end of closing, I was so happy. It made it all worthwhile! Driving to my new home, and opening the door with those keys was just so amazing.
After you close and realize that you've just signed up to pay HOW much every month for HOW long, the real regret kicks in... and goes away after a few days (usually). It feels really expensive getting into it, but you get used to it after a while
I am a first time home buyer and have a lot of concerns.
I have made a $500 earnest money deposit and currently (will have) a ratified contract tomorrow. Home inspection is next Monday, which is $350. Then comes the appraisal.
I am worried that 1) the home will not appraise at what I am borrowing, thus cancelling the deal
2) My financing will not go through
In situation 1, I have lost $500 earnest money and $350 inspection
In situation 2, I have lost $500 earnest money, $350 inspection, and $400 appraisal fee.
Can anyone ease my mind on this before I drive myself crazy?
Please tell us you have a real estate agent who is working on your behalf (not the agent representing the seller) and you aren't going at this solo, with no representation . . . please . . .
In most standard contracts, your earnest money is not lost if the home does not appraise -- the seller is given an opportunity to come down on price, or the buyer might choose to pay the difference between what the bank will loan and the sales price (for example, if you are buying a $100,000 house, and the appraisal comes back for $95,000, you might like the house so much that you agree to pay the difference, anyway.) Or some combination of the two (seller comes down a little, buyer comes up a little). But, cross that bridge when you get to it. It is true that you will only be able to get a mortgage on the appraised value, so the amount of mortgage you will be able to get will be slightly reduced. (90% of $100,000 is a $90,000 mortgage. 90% of a $95,000 value is $85,500 -- so if you are buying a $100,000 house with a 90% mortgage, you would only be eligible for 90% of the appraised value, which would be $85,500.) In some cases, the seller usually comes down, if it is financially feasible (because they now have an appraisal that has determined the home's value, and that is probably what other buyers will run into, also). But sometimes the seller is has little equity in the property and can't afford to pay the difference, and may not be able to do what is called a "short sale." But what usually happens is that both parties walk away from the contract, you with your earnest money.
The $350 inspection -- that's an expense of home buying. Sorry, but yes, you'll be out the $350.
And yes, you'll probably be out the $400 appraisal fee, too. The bank isn't going to absorb the cost, and neither is the seller or the real estate agents. Who else is left? Many lenders, however, won't order the appraisal under the applicant's credit has been approved. Check with your lender, check your financing contingency deadlines, and see if that will work for you.
If your credit isn't going to support the purchase, everything else is pretty much moot. Have you at least been pre-qualified by a lender? Someone who has looked at your verifiable income, your debts and credit score, and given you a ballpark as to how much you can borrow? Pre-approvals are stronger than pre-qualifications, because that is taken to mean that the lender has done a complete credit and income verification on the buyer and the underwriter has signed off on the buyer's credit-worthiness. But because it takes time and money for the lender to do pre-approvals, some lenders won't do them, and most sellers are ok with a pre-qualification from a reputable lender.
But, kindly, I will observe that if the loss of a $350 inspection fee and a $400 appraisal fee is keeping you up nights, perhaps you aren't in a position to be purchasing a home right now. That $750 is only the tip of the iceberg when it comes to home ownership -- deposits for water, electricity, cable, moving expenses, light bulbs, closing costs, etc.
Yes I am working with an agent.
I got prequalified by a reputable lender who I discussed my situations with throughly. I even have a little wiggle room at the back end of my DTI ratio for error. I qualified for a no MI home loan, which saves me over $100 a month.
So if I was buying a 100k house with 3% cash down, it must appraise at 97k or greater...that definitely makes me feel better, because I was banking off the total price paid, not being financed. I am almost certain it will appraise at 97% value, whew!
Another side question, where to get homeowners insurance with the best rates...this may be for a new thread.
Thanks for your input all!
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Grammar Nazi Alert
Mine wasn't, because everyone but me was behind schedule and hadn't finished on time. But with some prodding the closing actually did happen as scheduled. 
