Final Appraisal Came in $40,000 less! WORRIED!!

kariromeroAugust 28, 2014

I am freaking out because when we started construction on our house, it appraised at $450,000. We budgeted just enough to have 20% equity in the house. Now we only have 15% equity and I have no more money to put down on the house. I'm worried that now that we have dropped below that 20% mark and have to do PMI, it may cause our loan to fall through in underwriting. We are waiting on final underwriting now and I'm soooooo stressed. Am I worried for no reason?

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no. you are worried for good reason. do you have 10-20% additional set aside for contingency? Because things like this happen, it is important to make sure you've got more money than is necessary to get the project going. If your budget is super tight and fixed, the best route is to either buy an existing home, or a home in a development where the builder assumes the risk during construction then sells it to you at the end.

    Bookmark   August 28, 2014 at 9:49PM
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Where did the initial appraisal come from? Are you O/B or hired a GC to build?

    Bookmark   August 28, 2014 at 10:18PM
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It sounds like they have a built house now, and no money left over.
Yikes! I hope it all works out for you. I am sure they will do PMI. The bank really doesn't want to own the house.

To help you, you can try to boost your appraisal. Do you have recent sales of like homes in your area that sold for more than your house appraised at?

    Bookmark   August 28, 2014 at 10:29PM
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Sophie Wheeler

Get a loan from a relative. You will need it to close. Its a hard lesson to learn to not put everything up to your eyeballs into a build. Youv'e GOT to have that 20% contingency held back.

If you can't bring more money to the table, yes, the bank will want to take possession. What's one more foreclosure on their books? At least a brand new house will be easier for them to sell. Its a lesson for them as well to do better diligence during the investigation for the loan.

    Bookmark   August 29, 2014 at 7:36AM
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If you get a loan from a relative, it can't be recorded as a loan, or you haven't improved your loan to value position in the bank's eyes. It will have to be treated as a grant or a gift (and whether or not you pay it back to your relative is between you). But, from the bank's perspective, it cannot look like a loan (legally. So, it can't be recorded).

Good luck!

    Bookmark   August 29, 2014 at 11:08AM
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Secondary lenders--private and corporate--come into play when similar situations arise in our area. I would suggest you contact a mortgage broker in your community familiar with these lenders.

Wearing my builder's hat, I have several times advanced secondary financing on closing to fill the gap between the institutional financing and the cost of construction. If this is a diy job, of course, this does not apply.

This post was edited by worthy on Fri, Aug 29, 14 at 12:07

    Bookmark   August 29, 2014 at 12:03PM
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Many construction loans allow 10% down. Talk to your loan agent. Your bank may have loans like this, and all they will do is add PMI to your monthly bill. A pain, but doable. If they only do 20% down loans, then your best (and possibly only) option is to borrow money from someone, but like previous posters have said, it must be stated as a "gift"

    Bookmark   August 29, 2014 at 3:09PM
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Here, private lenders regularly top up conventional first mortgages with secondary financing to a maximum 85% LTV even without mortgage insurance. However, as noted above, some first mortgage lenders may have policies against this.

As well, different lenders will appraise your property differently. There's no monopoly on mortgage loans. Shop around.

    Bookmark   August 29, 2014 at 7:37PM
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