Appraisal question

kateydid29June 29, 2013

Just wondering what happens when a house is appraised for less than the sale price. For example, say a house is under contract (accepted offer) for $400000. The buyer plans on a down payment of $125000 so they will only have to finance $275000. The appraisal comes in at $350000, so less than the sales price but more than the loan amount.

Does the bank care about this at all? Would it jeopardize the loan? The buyer and seller are fine with the appraised value versus the sales price.

Thanks!

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kirkhall

As long as the borrowed amount is under the required percentage it should not be a problem... For example, if a bank requires 20% equity (an 80/20 loan) and the house appraises at 350k, then the borrower would be okay as long as they were borrowing less than 280k (.8*350) If they require 25% equity, then you'd not be able to borrow more than 262.5k and you'd (the buyer) would have to come up with more of a down payment, or negotiate your buying price down by 18k to cover that difference...

    Bookmark   June 29, 2013 at 11:32PM
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weedyacres

Banks care about appraisals because they want to make sure that if the buyer defaults they can get their money out by selling the house. So they typically won't lend more than 80% of the appraised value. As long as the down payment is sufficient to get the loan amount to 80% of appraisal, you should be ok.

Where people get into trouble is if they only have 20% of the contract price to put down and the appraisal comes in under the contract price. They then either need to come up with a larger down payment or get the seller to accept a lower price.

    Bookmark   June 30, 2013 at 8:16AM
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kateydid29

Thank you both! I never knew thats how it worked!

    Bookmark   June 30, 2013 at 11:38PM
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