We have had several FHA Purchases lately involving appraisals that came in way above purchase price. We have a $420,000 purchase, for example, with a $460,000 appraisal.
When this happens, our borrowers often think they qualify for better financing, but they don’t. For value purposes, lenders always correlate to the Contract Purchase Price. Appraisals are only required to support the contract price. If they come in high, it does not affect the financing (it is just a nice feeling for the buyer).
BUT, six months AFTER close of escrow, if the appraised value holds, then the borrower can correlate to the appraised value and refinance into a better loan.
Many of our lenders accept “current appraised value” six months after close. But up to close, and up to six months after close, lenders correlate to the “contract price,” almost no matter what.
If an appraisal comes in low the loan amount and the ‘loan-to-value ratio” must be adjusted to correlate to the appraised value. If the seller won’t come down in price, the buyer simply has come to the table with the extra proceeds (to make up for the reduced loan amount). The buyer must also write a letter to explain why he or she is willing to pay more than the appraised value for the property.
Founder/Broker | JVM Lending
(855) 855-4491 | DRE# 1197176, NMLS# 310167