Mortgage question - loan versus appraisal

[SunnyD]

I'm in the market for a house, as some of you may know. I'm currently looking at a remodeled home that just came on the market. The sellers are being hardass and basically unwilling to negotiate on the price... and here's why:

They're selling for $149,000.
They had the house appraised 4 months ago at $165,000.

Their reasoning is that the buyer would be getting a deal, and however it works, instant equity in the home. Fine and dandy, but in this market, I've got to wonder how long the "value" will hold.

My question comes to the mortgage part. I was told that in obtaining a mortgage, I would be able to use the difference between the purchase price and the appraised price in figuring down payment. I was wondering if anyone knows if this is true and how it works.

Thanks!

 

[BoberFett]

An appraisal four months old is already out of date. That aside, appraisal price and loan amount have nothing to do with each other, except for how much the mortgage company is willing to loan you. Down payments is based on purchase price. Anything you hear on late night TV that talks about walking away from closing with money in hand as the buyer is most likely illegal. Those scams are based on fuzzy appraisals and shady practices.

 

[Thorny]

You'll need to get a new appraisal of the house anyway, lenders require that the appraisal be done in thier name. The down payment depends on the lender, not the appraised value. You will be closer to the 20% equity mark to get out of PMI any way you look at it though.

 

[SunnyD]

Originally posted by: Thorny
You'll need to get a new appraisal of the house anyway, lenders require that the appraisal be done in thier name. The down payment depends on the lender, not the appraised value. You will be closer to the 20% equity mark to get out of PMI any way you look at it though.

Right, that's exactly what I'm asking. How does that work with respect to PMI?

Again, I obviously don't know what the right questions to ask are, which is why I'm asking.

 

[BoberFett]

PMI is based on purchase price.

 

[bctbct]

The appraised value is what 1 expert thinks its worth, four months ago. Since its subjective it should not dictate how much you think the house it worth. Of the hundreds of people that have looked at it recently, you are the only one trying to buy it and even you dont think its worth the asking price.

Back to your question. PMI is based on your loan amount. If you want to get out of PMI you can do 80/20 financing.

 

[jiggahertz]

Originally posted by: BoberFett
PMI is based on purchase price.

Once you have 20% equity in the house of the purchase price you will be able to get the house reappraised and drop the PMI. So if your house is appraised at more than the purchase price this counts toward your equity.

 

[BoberFett]

I should have been more clear, PMI is based on LTV (loan to value) ratio.

 

[Thorny]

Originally posted by: BoberFett
PMI is based on purchase price.

Purchase price can be "tweaked" by the seller gifting the difference between appraised value and sale price to the buyer. I'm not sure on the restrictions, but I've done it so know it can be done. On paper it looks like you get a $16,000 check from the seller, but it works out on the bottom line. That can fix your PMI and possibly your down payment amount. The lender my say PMI is based on purchase price, but it all boils down to equity.

 

[BoberFett]

Originally posted by: Thorny

Originally posted by: BoberFett
PMI is based on purchase price.

Purchase price can be "tweaked" by the seller gifting the difference between appraised value and sale price to the buyer. I'm not sure on the restrictions, but I've done it so know it can be done. On paper it looks like you get a $16,000 check from the seller, but it works out on the bottom line. That can fix your PMI and possibly your down payment amount. The lender my say PMI is based on purchase price, but it all boils down to equity.

That sounds an awful lot like fraud. You may have gotten away with that in the past, but with the boom and now bust of the housing market there's been a crackdown on questionable lending practices. Messing with that kind of thing these days is setting yourself up for disaster.

 

[Thorny]

Originally posted by: BoberFett

Originally posted by: Thorny

Originally posted by: BoberFett
PMI is based on purchase price.

Purchase price can be "tweaked" by the seller gifting the difference between appraised value and sale price to the buyer. I'm not sure on the restrictions, but I've done it so know it can be done. On paper it looks like you get a $16,000 check from the seller, but it works out on the bottom line. That can fix your PMI and possibly your down payment amount. The lender my say PMI is based on purchase price, but it all boils down to equity.

That sounds an awful lot like fraud. You may have gotten away with that in the past, but with the boom and now bust of the housing market there's been a crackdown on questionable lending practices. Messing with that kind of thing these days is setting yourself up for disaster.

It's not fraud as long as its in the HUD and follows the lenders policy. Down payment gifts are allowed in most loans, there are just restrictions on how much and by whom that you have to follow. The government actually prefers the higher sale price because they generate more property tax revenue that way.

The only thing the buyer need beware is fraudulant appraisals, which is the most memorable source of housing fraud recently, and that mostly pertains to investment property.

 

[CniCE]

That appraisal on the house 4 months ago could of been a push. Mortgage brokers often pressure the appraisers to over appraise properties so they can do the maxium loan and make their nice comission.

What you should do is checkout zillow.com find some recent models matches and see what they sold for. Also check out the other listings in the neighborhood and see how long they?ve been on the market and what they?re at. Note the size, upgrades, bedroom bathroom count, lot size etc. Call some of the listing agents and see what they think.

That instant equity thing is BS. If it was really worth more, then it?d sell for more. If you?re really worried about value you could hire your own appraiser for $350 and get them to give you an honest opinion of value. I wouldn't do that unless you think the asking price is way out of line. Just do your homework, check recently closed comparables, pendings, listings etc. It shouldn't be too hard to figure out what its really worth.

 

[IronWing]

If the lender wants to make the loan then the appraisal will come back to fit the loan requirements.