I'm buying a new construction home, and I think I overpaid by about 10%. To me and my family, it's worth it. We got to pick exactly what we want for our home. The price is ~$700k and (I think) a fair value for the house is ~$630k. I'm almost certain that the home won't appraise at $700k. So what happens then? Do I just have to increase my down payment to cover the $70k gap? I can afford to do that, but I prefer not to. What are my other options, if any? #mortgage #housing #appraisal
This happened to my friend in a brand new development 8 years ago. He had to pay the difference.
This is happening to many people right now bc prices are out of control. The bank might be able to give you more with higher interest rate but im not sure if that is common
Happened to me few years back and I had to cough up the full difference out of pocket.
Why did you have to pay the full difference? Is it to stay at the 20% mark for the down payment?
This happened to me as well. I spoke to my agent about this. Him and seller's agent coughed up some amount from their commission and made the sale happen. But it was around 2013 and the market was not as crazy as it is now and the difference is not high as well. You can try this approach
Depending on the mortgage contingency you have in your contract, you'll have leverage to retrade the sale price, down to the appraised price. But if your contingency is like for 70% instead of 80% then you have to eat it. There are generally two options. You can increase your down payment to keep the LTV according to the appraised value. Or you can work with a lender who will write you for greater than 80% leverage. You will pay more in interest (over the amount of the under appraisal), but it could be worth it if you need the cash now. Also, banks are incentivised to do these deals, and part of doing the deal is appraising at sale price. You can usually talk to the appraiser and see if they can make it work. At least that works on commercial deals.
Thanks for the detailed explanation!
You can reduce your down % and pay the difference
depends on your loan amt .....eg: assuming 700K price - a 20% down payment is 140K and loan amt would be 560K if value comes back at 630k - lender will use this figure so your options are : 1) keep the loan amt at 560K new loan to value would be 88.8% ..you still need to spend the 140K down payment ....your rate/ fee will change due to the ltv being higher and you would alos need to pay for monthly mtg insurance as LTV is over 80% 2) adjust the loan amt to 504K ( down from 560K ) in order to keep the LTV at 80% of appraised value and to keep rate/ fee pricing the same as what you locked in
Thanks for the detailed explanation!
welcome - food luck with your closing
Location? What about other house in the area? Your builder can give information for other sales they are doing
Other sales vary greatly because lot premiums are not the same. Also different models and options lead to drastically different prices.
If you’re buying from a builder in a community, they will almost always magically appraise, especially if you’re using the building lender. If it’s a custom build, might be a bit more difficult. Either way, would need to come up with the difference or negotiate with the builder. If you did custom stuff to the home, you’ll be SOL with those upgrades.
Yes, this is a community built by a builder. I'm planning to go with the builder's lender, so it's good to know that they magically appraise. What does SOL mean?
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Yes. The bank will only lend up to the appraised value (minus the down payment). So you will be responsible for the gap.