This is a reminder that appraisal contingencies and/or proof of funds to cover appraisal shortfalls are unnecessary with large down payments.
This is because lenders can easily shift financing from 30% down to 10% down, for example. Buyers can then use the savings from the smaller down payment to cover shortfalls – if an appraisal comes in low.
We have, in fact, saved many 10% down purchases by shifting them to FHA financing with only 3.5% down.
But there is a huge exception to this rule – and it is also good news!
But First – The Good News!
- Rates are now LESS than 1/2% higher than before the start of the Iran War. Not great, but a very nice reversal from the trend – as we were close to 0.75% higher last week.
- Purchase mortgage applications are down from before the start of the war (reminding us again of how much rates influence purchase activity). BUT mortgage applications are still 1% HIGHER than last year at this time, per Logan Mohtashami, and pending home sales are higher this year as well. This is another reminder to ignore the “crash bros” who are screaming “real estate Armageddon” all over social media.
- There is an enormously powerful force the crash bros are not considering right now: pent-up demand!
The Exception – 22 Offers on an $839,000 Home!
Two of our pre-approved borrowers made offers on the same $839,000 home in Richmond, CA. One was for $100,000 over list, and the other was for $200,000 over list – and neither was even considered because it was a feeding frenzy with 22 offers!
The odds that this house will appraise for contract price are slim to none. So, this is the obvious “exception” to my comments above about not needing proof of funds for an appraisal shortfall.
This appraisal could easily come in so far under contract price that lenders will not be able to simply adjust the financing from 30% to 5% down.
Why This Is Good News!
The multiple-offer situation above is not driven by AI or tech money, as we often see in San Francisco or similar markets.
It seems to be more driven by massive pent-up demand from buyers who want to buy in proximity to certain areas – and who no longer want to wait for rates or prices to fall.
They just want homes of their own, and I suspect there are a lot more people like that across the country than the ”crash bros” realize.
