Please help advise ☺ Loan from under-appraised to over-appraised
Hi BP community,
Let me describe this long story short. So this house I'm buying is a 2-unit small multifamily which I plan on house hacking. It was listed for $850K, and we agreed to $835K purchase during attorney review (attorney is required in the state of NJ). During the inspection, we found an extensive list of things that need repairing due to the unprofessional workmanship of the previous owner. The seller agreed after negotiation to give us $10K in credit towards closing to do the repairs. Then the appraisal came back with appraisal value of $815K. Then the seller refused to lower the purchase price and give us the credit. The seller made us to choose between 1) lowering the purchase price to $815K, and 2) keeping the price at 835K but offering $10k credit.
I didn't want to cover the $20K in price difference as the house was under appraised. Just before I was going to accept the lowered price $815K and waive any credits, the lender came back to me and said they did a re-appraisal which ended up being much higher - $900K. So the lender is saying I can borrow more because the house is re-appraised more, so now I can roll some closing cost into the loan and I have more money to work with to do the repairs needed.
I was planning on using cash to cover the repairs and closing (in the lowered purchase price scenario). But now with the higher appraisal, by borrowing more I'll pay more interest and my monthly payment will increase but I get to keep money in my bank. If I invest that money in stock market, the market is in the negative now. But I guess I can save up for the next property.
All you experienced RE investors have more experience and I'd like to hear what you would do in this situation.
Thank you so much in advance!
Lin
Hey Lin,
I would roll the closing costs via a seller's concession into the purchase price and go into the deal with a greater level of liquidity in the event something comes up in personally or professionally. Also, with the new home there will most likely be some additional repairs that will want or need to be made that may require that extra cash.
Best of luck to you!
Quote from @Lin Ding:
Hi BP community,
Let me describe this long story short. So this house I'm buying is a 2-unit small multifamily which I plan on house hacking. It was listed for $850K, and we agreed to $835K purchase during attorney review (attorney is required in the state of NJ). During the inspection, we found an extensive list of things that need repairing due to the unprofessional workmanship of the previous owner. The seller agreed after negotiation to give us $10K in credit towards closing to do the repairs. Then the appraisal came back with appraisal value of $815K. Then the seller refused to lower the purchase price and give us the credit. The seller made us to choose between 1) lowering the purchase price to $815K, and 2) keeping the price at 835K but offering $10k credit.
I didn't want to cover the $20K in price difference as the house was under appraised. Just before I was going to accept the lowered price $815K and waive any credits, the lender came back to me and said they did a re-appraisal which ended up being much higher - $900K. So the lender is saying I can borrow more because the house is re-appraised more, so now I can roll some closing cost into the loan and I have more money to work with to do the repairs needed.
I was planning on using cash to cover the repairs and closing (in the lowered purchase price scenario). But now with the higher appraisal, by borrowing more I'll pay more interest and my monthly payment will increase but I get to keep money in my bank. If I invest that money in stock market, the market is in the negative now. But I guess I can save up for the next property.
All you experienced RE investors have more experience and I'd like to hear what you would do in this situation.
Thank you so much in advance!Lin
Hi Lin,
The lender is offering to lend based on the higher appraised value ($900K) instead of the lower sales price of the property ($835K)? Is that correct?
Quote from @Brandon Beardt:Hi Brandon, thanks for responding. Yes the lender did offer to lend up to the re-appraised value ($900k) or anywhere in between (1st appraisal $815k - updated $900k). I wasn't too confident about the updated appraisal $900k because I saw the comp sold in Feb2022 was used to swap out one of the comps in the original appraisal. So I went with the $835K purchase price w seller offering $15K concession. I hope that was the right move instead of purchasing at $815k w/o seller concession cuz then I'll still have to come out of pocket for the closing cost.
Quote from @Lin Ding:
Hi BP community,
Let me describe this long story short. So this house I'm buying is a 2-unit small multifamily which I plan on house hacking. It was listed for $850K, and we agreed to $835K purchase during attorney review (attorney is required in the state of NJ). During the inspection, we found an extensive list of things that need repairing due to the unprofessional workmanship of the previous owner. The seller agreed after negotiation to give us $10K in credit towards closing to do the repairs. Then the appraisal came back with appraisal value of $815K. Then the seller refused to lower the purchase price and give us the credit. The seller made us to choose between 1) lowering the purchase price to $815K, and 2) keeping the price at 835K but offering $10k credit.
I didn't want to cover the $20K in price difference as the house was under appraised. Just before I was going to accept the lowered price $815K and waive any credits, the lender came back to me and said they did a re-appraisal which ended up being much higher - $900K. So the lender is saying I can borrow more because the house is re-appraised more, so now I can roll some closing cost into the loan and I have more money to work with to do the repairs needed.
I was planning on using cash to cover the repairs and closing (in the lowered purchase price scenario). But now with the higher appraisal, by borrowing more I'll pay more interest and my monthly payment will increase but I get to keep money in my bank. If I invest that money in stock market, the market is in the negative now. But I guess I can save up for the next property.
All you experienced RE investors have more experience and I'd like to hear what you would do in this situation.
Thank you so much in advance!Lin
Hi Lin,
The lender is offering to lend based on the higher appraised value ($900K) instead of the lower sales price of the property ($835K)? Is that correct?
Now I'm getting nervous if this is a good deal or not. I know the unit that's currently rented is below market rent and the lease is coming up in end of November. I want to raise the rent to close to $2400 however it's a big jump from where they're at $1850. With the duplex I'm going to househack, I'm thinking to rent out by room (maybe mid-term rental) and I have 3 small bedrooms can be rented out, or do STR. However I'm not sure how much revenue that'll bring cuz it's a brand new market for me (never lived in Jersey City before). Any idea or advice anyone has to give?
There's also another issue with the house. The seller has an open permit for the patio that's not up to code. The seller agreed to work on the patio and close the permit, but that work hasn't started yet cuz they're waiting on the city's approval before they start. However my interest rate lock period is until early December. I'm thinking about this now as market is dropping. That offered price was made 2 months ago and appraisal was done in Oct. If we can only close in December, the house value may have gone down even more. Am I just thinking too much here? Anyone?
Quote from @Josh Starner:
Hey Lin,
I would roll the closing costs via a seller's concession into the purchase price and go into the deal with a greater level of liquidity in the event something comes up in personally or professionally. Also, with the new home there will most likely be some additional repairs that will want or need to be made that may require that extra cash.
Best of luck to you!
Thank you so much Josh! That's what I decided to do. But I'm now thinking what to do now as I'm still waiting (see my comment to Brandon)