Raleigh, Durham, Chapel Hill, CaryThe Triangle Area
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Like I said earlier, I don't know how you can get a loan if the new homes are priced that much under yours. The comps are going to come in too low. Hopefully the contract has an out for appraisal.
Well, the homes under contract at a higher price will likely sell before the "price-reduced" homes close escrow. An appraiser can only use comps of homes actually sold, not those on the market. So if all the homes were selling for $25,000 more recently the appraisal will come in still.
Once 3-4 homes sell for $25,000 less then you are in trouble. An appraiser would have lots of market data showing the more recent sales are lower and therefore the "market value" of the home is now less.
Well, the homes under contract at a higher price will likely sell before the "price-reduced" homes close escrow. An appraiser can only use comps of homes actually sold, not those on the market. So if all the homes were selling for $25,000 more recently the appraisal will come in still.
Once 3-4 homes sell for $25,000 less then you are in trouble. An appraiser would have lots of market data showing the more recent sales are lower and therefore the "market value" of the home is now less.
Can you guys please help me understand what exactly is the problem if the home appraises for a lower value than the value on the contract ? Does this mean you have to come up with the delta in cash since the mortgage lender can only lend you only up to the appraised value ?
Can you guys please help me understand what exactly is the problem if the home appraises for a lower value than the value on the contract ? Does this mean you have to come up with the delta in cash since the mortgage lender can only lend you only up to the appraised value ?
Yes, if the home appraises for under the current contract price, the buyer would need to make up the difference.
Another thing to look out for when you are going for a new construction in this market
Kedus, pls don't get me wrong - when you buy a new house i was assuming that you account for these kinds of swings
what is 25k in a 500K house is a optimistic way to look at since there is not much you can do here - you got a nice house to live in
FYI we will be signing a contract sometime in the future for a new home since that is what we want and we ARE expectingthe values to come down in this market. You can't price in the lower value sometimes -however hard you bargain upfront. Since we are planning on putting substantial down we are probably looking at higher loan amount for this scenario - take it on the chin and move on
again sorry if this sounds a little blunt. hope things work out ok and you have a jolly good time
Can you guys please help me understand what exactly is the problem if the home appraises for a lower value than the value on the contract ? Does this mean you have to come up with the delta in cash since the mortgage lender can only lend you only up to the appraised value ?
As coltank said, you do have to pay the difference. Lenders will only lend you a specific % (be it 90 or 100) of the LOWER of the sales or appraised value.
If a home is for sale at $250,000 but appraises for $200,000 the lender is not going to give you $250,000. It was already risky enough that they do 100% financing (and some did lend up to 125% a few years ago under some conditions) they do not want to lend more than a home is worth. Now with values declining in some areas and only slow growth at best (luckily we are stable for now) lenders are tough on appraisals.
Usually sales contract have a contingency clause on appraised value for that reason. It allows the buyer to back out if the home does not appraise for the agreed upon price.
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