We often discuss high loan-to-value (LTV) financing (90% to 96.5%) with borrowers who would otherwise put down 20% or more. This is b/c they are making offers in very hot markets where there are simply not enough comparable sales to support the expected contract price.
High LTV financing allows borrowers to put less money down and save the remaining funds for an appraisal shortfall, should an appraisal come in low.
We once had a transaction in Castro Valley with a contract price of $600,000, but the appraisal came in at $510,000 b/c of a complete lack of comparable sales data in the area.
The borrower still wanted the home, and had intended to put down 20% or $120,000. We switched the transaction to FHA, allowing the borrower to put down 3.5% of the appraisal value (about $18,000), and use his savings to cover the $90,000 shortfall.
B/c we and the Realtor had explained the likelihood of an appraisal shortfall and the various options prior to the issue surfacing, the borrower had no problem taking advantage of the above solution.
Founder/Broker | JVM Lending
(925) 855-4491 | DRE# 01524255, NMLS# 335646