If an appraisal comes in at a higher amount than the sale price, does the lender fund based on the appraised value or the sale price? E.g, sale price is $80000. Appraisal comes in at $100000. If the bank lends at 80% LTV, would it provide funding in the amount of $64000 or $80000? If the latter, is the buyer essentially getting 100% financing for the purchase? I'm not tracking the mechanics. Any clarification would be appreciated. Thanks.
LTV is based off the Appraisal. But, down payment is based of the sales price.
LTV requirements and Down payment requirements are 2 different things. If the bank is requiring 20% down payment. The buyer will still need to put down 20% of the $80000 sales price. Regardless of the LTV.
A mortgage company is not going to pay more than they need to. So even though the appraisal price is higher than the sale price. The lending company will only lend money for the sale price if that's the case.
For the 80% LTV, the mortgage company will finance the 640K since the other 160K is your personal money that you are putting into the property.
@Wilson Lee @Brian Adzadi Thank you, and that makes sense. So in the bank's eyes, is the point of the appraisal simply to make sure that the buyer is not drastically overpaying for the property, beyond it's general market value?. E.g., if the sale price is $80k and the appraisal comes in at $60k, I'm guessing the bank would only be willing to lend at the $60k value?
That's exactly it. Welcome to real estate.
@Ishviyan D. the easy way to look at it... the bank is always going to go with the lower number. If your sales price is lower than the appraised price, they'll only lend up to allowed LTV for the sales price (75% if its a non-owner occupied investment property). If the appraised price comes in low, they'll only lend up to the allowed LTV for the appraised price. A low appraised price can kill deals. You can contest those, but its definitely a process and does not have a 100% success rate.
The good news is after six months of owning the property. The bank (most) will use the full appraisal value. You can refinance . Letting you recoup some of your down payment
@Matt Lefebvre thank you very much for the clarification
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