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No Appraisal Contingency

Hello,

If the offer is $350,000 and the house only appraised for $330,000. As a buyer do I need to add extra $20,000 to my 5% downpayment to offset the difference?

I'm really eager to buy the house, can somebody tell me the best option I have to take?

Will the total loan amount be based on the $330,000 or the $350,000?

Any help would be appreciated.

Thanks in advanced.

Jeff
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February 06 2013 - Fremont
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Profile picture for blub blub blub
You are probably not going to get the additional $20,000 from the lender.  Lenders will not loan over the appraised value.

Yes basically the $20,000 goes to the seller. 

Let me break it down this way:

The seller is getting $350,000 (Your loan, downpayment and an additional $20,000) for a property that appraised out at $330,000.

Even if properties are starting to sell, in my opinion, it is too early to start paying over appraised value for properties.  There are some that will say the comps used for the appraisal are wrong.  That could very well be, but most likely, there was something used that brought the value down for this property.  Most likely, is a shortsale or foreclosure in the area.  If there are numerous shortsales or foreclosure in this area, then the appraisal is probably closer to market value than what the seller is asking for. 

There still needs to be a lot more movement in a positive direction of house sales before calling it a recovery.

It's your decision as to whether or not you want to pay over the appraised value for the property, but keep in mind, you could and most likely are, over paying for the property.

I was typing and didn't see your post.  If you are going to be there a long time, then it's completely up to you as to whether or not it's worth paying the additional $20,000.  But you will need to bring it to closing, as you will have a hard time getting it as part of your loan/mortgage.  It will need to be in addition to your 5% downpayment.
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February 06 2013
Again, I essentially paid $4,500 over appraisal or a little less than 2% over. It is a unique property, with an incredible view, completely redone pool, two enormous shop buildings, which added little to the appraisal but will add to sell-ability, but more importantly live-ability. Not to mention, we knew it would cost over $500k to replicate this place. And like you we plan to be here a long time. 

Also, it was a bank owned property with multiple offers, and we signed an addendum that we would take it regardless of the appraisal.  The bank did offer to let us out and refund our earnest money. As you can see we rationalized it, lol. But it will be YOUR money, so do what you want 

You may be able to borrow the downpayment from your 401K or similar retirement, or against some other asset. But probably not from the mortgagor. Good luck, maybe the appraisal comes in spot on and it's a non-issue.

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February 06 2013
Profile picture for blub blub blub
You're very welcome.  Best of luck to you, I hope it works out for the best.
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February 06 2013
No you can't borrow the additional $20,000. Think of it this way, although you paid for the appraisal, the appraiser works for the lender. His job is to go out and figure out what the bank could sell the property for if for any reason you don't or can't pay the payments. So the bank is saying that they think they can get $330,000 for this property if you don't pay and they have to re-sale it. So they are only willing to loan you 95% of that price. 

They are not going to tell you that you can't pay $350K, but they aren't going to loan you that much because they don't think it is a good investment at that price. They believe you are giving the seller $20,000 dollars for nothing. And while they don't care if you give away your money with no way to get it back, they aren't going to let you borrow the money from them just to give away. 
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February 06 2013
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@blub blub blub & Cindy Quinton

Thank you so much for your help guys! I really appreciate it.
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February 06 2013
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@blub blub blub

I plan to live in that house as longer as possible, probably 20+ years. So I don't have plans to sell it off soon.

@Cindy Quinton

"Unfortunately, by essentially paying more than the home is worth in one appraiser's opinion could be considered giving away money for nothing."

- That's the answer I wanted to hear. The price I mentioned is just an example, I still have to wait for the result of appraisal.

By the way, can I loan the $20,000 from my lender?
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February 06 2013
Equity simply means the difference between what you owe and what the home is worth at any given moment. Unfortunately, by essentially paying more than the home is worth in one appraiser's opinion could be considered giving away money for nothing. How much you pay as a downpayment, does not change the current VALUE of the home. It may change your borrowing terms, but not the value.
 
Can you explain to me why you are willing to pay more than $330,000 for this house? What makes it worth more than market value to YOU?
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February 06 2013
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@blub blub blub

Yes it does make sense.

So the $20,000 goes directly to the seller right?

If so, can I do this instead. I would opt to loan the $20,000 from my lender. is that possible?
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February 06 2013
Profile picture for blub blub blub
You need to find out if the appraisal is correct at $330,000 or if its low.  If it is correct and you add $20,000, then it's not equity.  If the appraisal is low for the area, then your additional $20,000 could be part of the equity.  It's only equity if you can turn around and sell the property for $350,000 or higher.
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February 06 2013
Profile picture for blub blub blub
No  Your 5% goes towards the $330,000.  The $20,000 is the difference needed to equal the offer amount of $350,000.

So in this case, $16,500 (5%) comes off the loan of $330,000 equaling $313,500 plus you would need to bring $20,000 to equal the offer amount of $350,000.

   Loan               $313,500
   Downpayment   $16,500
   Total               $330,000

   Difference         $20,000
  
   Offer Total       $350,000

Make sense?
 
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February 06 2013
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@Cindy Quinton

Thank you I appreciate your comment.

Anyway does the $36,500 count as my home equity?

If I can come up with a 20% DP do you think it would be better?
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February 06 2013
I recently paid more than appraisal for a my own personal home. I tried to get the seller to renegotiate, but they refused and we felt it was worth the additional expense But you have to at least TRY. Maybe the seller would meet you in the middle? 

Otherwise, you will have to bring the overage of 20,000 and the 5% of $330,000, or $16,500...for a total of $36,500. 

Appraisals can certainly lag a bit in a rising market, but 6% over is a lot. Again, I feel that you should try to renegotiate. 
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February 06 2013
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"you will need to bring an additional $20,000 to closing in addition to your 5% downpayment."

- but does the additional $20,000 count towards my equity?

Would this work this way:

$330,000 x 5% = $16,500

$16,500 + $20,000 = $36,500

So would this mean I already put 11% downpayment (36,500 is 11% of $330,000) to the property? and I will then only have $293,500 ($330,000 - $36,500 DP) loan amount?

Let me know if those figures are accurate.

Thanks!
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February 06 2013
Profile picture for blub blub blub
Lenders will based the loan on the appraisal, not the offer.  If the appraisal comes in lower than the offer, the lender will either deny the loan, or you will need to bring the difference to closing.

So yes, in this case, you will need to bring an additional $20,000 to closing in addition to your 5% downpayment.

I take it from the headline "no appraisal contingency" that your offer was based on not having an appraisal.  However, if the appraisal came back lower than the offer, you could use this to try and renegotiate the offer with the seller and see if the seller will accept the lower amount before agreeing to pay the difference..

 
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February 06 2013
 
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