Buying A Home
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Another ? about low appraisals

Does what financing the buyer is using matter? For example, if the appraisal comes in lower than the offer price but the buyer is paying cash or doing a conventional loan with 20% down (so the actual loan wouldn't be full asking price), could the deal still go through?
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Re: Another ? about low appraisals

  • If the buyer is paying cash there would not be an appraisal because there is no loan.
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  • Depending on the type of mortgage, the appraisals could be 'tougher'.   At least in my area, FHA and VA appraisals tend to be the toughest (with VA being the worst).

    Conventional loan with 20% or cash would be better for you if you are worried about the appraisal - because there is no appraisal with cash, and the appraisal with the 20% down loan would be because they bank would be concerned that the house is appraised for over the mortgaged amount (which is purchase price less 20% cash) 

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  • We didn't consider FHA loans, so this is only what I heard from our friends who did do FHA. So, take it with a grain of salt, because I have no idea if it is true or not. But they did have a struggle with a house they loved and wanted despite the low appraisal.

     With a conventional loan, the buyer, if they really want the house, can add more cash to the deal to get the loan approved. The bank is not going to lend more than it is worth, and some banks might not be ok with this.

    With FHA, they were not permitted to add more cash to "make up" the difference between appraisal and sale price. The lender told them that it was because it was FHA that they could not.

     Now whether that was just their bank and what that lender said, I do not know.

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  • If you are a cash buyer there is no bank to require an appraisal although I would assume most people should pay for an appraisal. 

    The type of loan doesn't really make a difference for appraisals.  If you agree to purchase for $100k and you want to do a 20% down conventional loan, you'll bring $20k as your downpayment.  Let's say the house appraises for $90k.  If you are doing a 20% conventional then your loan would be for 80% of the apprised price or $72k.  If the seller doesn't lower the price and you wish to pay out of pocket, then you are buying the house still for $100k.  Your loan is maxed at $72k so you'll bring $28k to closing for your downpayment now.

    If you only have $20k to bring to close you can still buy the house for $100k and get an $80k mortgage but you'll likely have PMI and it won't be a 20% conventional because the loan to value is $80k:$90k which is something like 12% equity in the house.   

    Long story short the deal can still go through but either the seller comes down to apprisals price or the buyer is out of pocket for some of the negative equity.  

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  • Our seller's new house appraised low. They brought more cash to the table to keep their loan-to-value at 20%. It was a multiple-bid situation, so their seller was ready to walk/take another offer and would not budge on price. 

    Our appraisal came in low, too. Again, seller wouldn't budge because there were higher offers than ours.  Because of our specific loan-to-value ratio, the bank loaned us the same amount and was willing to, we put the same amount down, and the only negative consequence is we got less points refunded back to us than originally quoted because our loan-to-value ended up being slightly higher. Well plus the psychological pain of knowing we're overpaying according to this specific appraiser. 

     It's not always a deal-killer but often can be.  

     

    eta: type of loan doesn't matter. Amount of loan & what percentage of the purchase price it is does.  

  • Edited by moderator.

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