Bank Asking for More Money Down??

21 Replies

Hello all.. I have a property that I am bout to go under contract on, to be a primary residence. This will be a private deal with our attorneys- no real estate broker involved. The contract will be signed soon but the deal will not be able to close for 3-4 months. Both owners died, one of which didn't have a will, so they have to get their nephew appointed as executor before we can close.

Today, I spoke to the seller’s attorney to get the purchase price and some other info straight. He asked how I will be financing the deal, told him conventional. He asked how much of down payment. I told him 5% down conventional loan. He said that this makes him uncomfortable because the bank may ask for more money as a down payment because of the condition of the house and it being sold AS-IS. The house is in livable condition with some holes in sheetrock but nothing too major. I have never heard of the lender coming back and asking for more money as a down payment DUE TO condition of the house. I have heard of them not lending to houses in un-livable conditions but never heard of a request for higher equity stake. Is this a thing???

He said that he would want a stipulation put in saying that if the bank requests more than 5% down, I will supply it. This way they haven’t been tied up in a contract and need to find a new buyer if this occurred. I understand trying to protect themselves from losing a sale and having longer holding costs, but just didn’t think this would be something the bank would ask. This stipulation would have a stop number. So say “buyer will put in higher down payment if bank requests it, up until 20%” or something like that.

I really don't get how this would happen especially because our agreed upon price is already $20k lower than what the as is appraised value came back at. (They had it appraised at $430k) Our sale price is $410. So my LTV from the get-go after the bank sends their appraisal will be more like 10-11%.

Now that I talk about it, that makes me think... is he trying to protect them if appraisal comes in lower due to any possible market corrections? If 4 months from now, the new appraisal comes in at $390, my bank will obviously not loan me on the $410 purchase price. Is his attorney trying to ensure I have to come up with the difference if this happens?! I will be sure that my attorney goes through this thoroughly so that the language states only if the bank requests more because of high LTV financing, NOT because of the possible changes in appraisal because they needed to drag out the selling process. 

@Harrison Busbee @Matt Wood @Dan Hertler

I didn't re-read your post 5 times to ultra mega check to ensure the following is true, but from my first reading I'd say you are 100% correct on all points. Lawyer needs to stay in his or her lane, just like sometimes LOs and Realtors need to stay in our lane and not give medical or legal advice. 

5% down conventional and 50% down conventional have the exact same property standards. It either meets the standards or it doesn't. Not once has an underwriter ever (and keep in mind the number of mortgages that cross my desk) come back to me after reviewing an appraisal with "oh hey Chris it looks like the roof is leaking, but we will approve the loan if they do 10% down instead of 5%."

However, the 50% down person doesn't blink if the appraisal comes in 3% or 6% short, since that will have zero impact on their ability to get financing, or the terms/conditions of that financing. 

I can't tell you how many times I've spoken with a lawyer (typically on probate or divorce transactions) and had a lawyer tell me that I'm "wrong" because of xyz case law or statute (in your case, the speculation isn't even backed by that, so...). My typical response is a very polite version of, hey, great, if your law library or law firm is going to fund Mr. Smith's mortgage and collect payments for the next 30 years, I'll hand their loan app over to you to handle. Otherwise...

Anywho, regarding this:

"He said that he would want a stipulation put in saying that if the bank requests more than 5% down, I will supply it."

Make the language say something like "if the bank wants more than 5% down, due to the condition of the property but not the value, buyer will provide." Meaning if the $100k property appraises for $95k (for ANY reason), this provision wouldn't require anything extra. By contrast if the $100k property appraises for $100k but the underwriter wants 10% down due to property condition, you come in with another 5% (I can't speak for all lenders and underwriters, but again I have never seen that happen, however if this will make the lawyer feel like they are looking out for their law client, great go for it let them have the feely feels with a meaningless contract provision that might as well read "if the sun-god Ra descends upon the back yard and demands you do a backflip, you will do a backflip"). Find a lawyer to help you with the specific language needed to achieve that legal meaning, it's not my field of expertise (see what I just said there? The lawyer on this transaction needs to learn to say it. :P ).

Also keep in mind like 40% of my business is Oakland properties that are 70 to 110 years old. So if there was anyone that was going to see "oh it's an old beat up house so you need 10% down instead of 5% down," it would be me. But, nope, never seen it. It either passes standards or it doesn't, 5% or 50% down makes no difference purely from that perspective. 

@Chris Mason BINGO!!! That’s exactly what I was hoping to hear.

I’ve learned a lot over the past few years so I was pretty confident when I told him I believe 5% and 30% should make no difference.

Of course he threw around that “I’ve been working in real estate for 42 years” weight and of course said that he has seen this happen. I did begin to think maybe this is a possibility. Going to triple check and call multiple lenders on Monday and hammer them on this question.

Anyway, now I am really starting to wonder- is he trying to throw some BS verbiage in there to make it so that I HAVE to come up with the difference should my bank’s appraisal come up shy of our agreed purchase price?!

Maybe he is also just worried that a bank may consider this house unlivable standards and won’t lend at all. At this point we would be tied up in a contract for 3-4 months and they’d have to start fresh looking for new buyer. But this would occur with any conventional buyer unless purchasing cash..

If the appraisal comes in low closer to close I would be worried the seller would just back out if I, as buyer, did not want to come up with more cash. 

This actually happened to me. I offered x and appraisal came in low, i was open to putting in more funds (it was only 5k) but luckily seller lowered price so i did close. 

If this is a property you want you might just think about how you would want to proceedin that instance. 

@Chris Mason isn't it possible that the bank would say that property does not qualify for this loan program. We are going to have to go with a construction,rehab, or other type of loan that requires a larger amount down.

Different way to look at it but the same result. 

Originally posted by @Ned Carey :

@Chris Mason isn't it possible that the bank would say that property does not qualify for this loan program. We are going to have to go with a construction,rehab, or other type of loan that requires a larger amount down.

Different way to look at it but the same result. 

No one wants to do a reno loan, those totally suck. 

And even then, FNMA HomeStyle is still.... 5% down.

 

@Ned Carey agreed I could understand this. Properties need to meet living standards. Though this should be fine as it has kitchen, baths, walls, roof, plumbing, doors, electrical, etc. all in working order. House is pretty old and nasty and to be to my personal standards, it needs a lot of work. But it should be fine for basic livability standards.

@Chris Mason a little update...

Today my attorney and the seller's attorney spoke. What he wants to see is a separate contract stating that "buyer will supply extra funds if the bank won't lend the full amount required". So if the bank says that the property isn't worth the agreed 410k, I need to come up with more out of pocket.

Should I do this? I feel like I am being pinned up against a wall by them. Why would I pay 410k if my bank deems it is only worth say 390k?! Most of me knows that the appraisal will not be an issue though and it will likely come in at $410k or higher...

Also, what difference does it make if someone is putting 20% down, doesn't the bank still need to appraise it at the agreed upon purchase price regardless of how much down payment in order to lend them that 80%?? 

@Eric Telese ,

Now the goalposts are moving, and you were correct upfront, they are concerned about appraised value, not property condition. 

Basically your question is "should I waive my appraisal contingency, given that I know the sellers are really worried about appraised value and don't think this property is worth what they are trying to sell it for?" I think you know the answer to that.

If you want to make a stronger offer upfront by waiving appraisal contingency, that's one thing and just means you want to write a really strong offer. When the sellers are proactively pressuring you to do that, that's another thing and it means everyone knows this property is worth less than what you are willing to pay.

If someone with a good DTI is putting 20% down and the appraisal comes in say 3% or 2% short, I can restructure the loan such that their down payment remains unchanged but they take on PMI, often times I'll go all the way down to the next 5% increment so they keep cash in their pocket while I'm at it (IE: consumer 'feels' they are putting 20% down based on sales price, underwriter views it as being 'really' 17% down due to appraisal, well screw that 15% down gets the same PMI rate and lets them keep money in their pocket, so we're doing that not 17%). I as a LO do not have that option with someone already and only putting the bare minimum down.

@Chris Mason Yes I agree, they are scared the property is not really worth that in the eyes of the bank. I must also mention- they had the property appraised 2 months ago at $430k (from an appraiser I am sure the attorney does repeat business with).


I then had it appraised at $420k (my appraiser said that the 430k was fair though). So at 410k, I am already purchasing it at a discount. Is there a big chance the bank appraisal is way off from these private appraisals? Closing will also be 3-4 months from now, so I'm not sure when they will send the appraiser and if market can change much.

Now that we figured out their motive, should I still ask to include "if the bank wants more than 5% down, due to the condition of the property, but not the value, buyer will provide." ?

Originally posted by @Eric Telese :

@Chris Mason Yes I agree, they are scared the property is not really worth that in the eyes of the bank. I must also mention- they had the property appraised 2 months ago at $430k (from an appraiser I am sure the attorney does repeat business with). 


I then had it appraised at $420k (my appraiser said that the 430k was fair though). So at 410k, I am already purchasing it at a discount. Is there a big chance the bank appraisal is way off from these private appraisals? Closing will also be 3-4 months from now, so I'm not sure when they will send the appraiser and if market can change much.

Now that we figured out their motive, should I still ask to include "if the bank wants more than 5% down, due to the condition of the property, but not the value, buyer will provide." ?


Oh, you will have 4 months to close? That's an eternity. Waive the appraisal contingency but (casually, don't make a big deal out of it, you want this to fly under the radar) get a 30 day inspection contingency. Have your lender or mortgage broker order the appraisal ASAP. A Realtor would instantly see what you are doing (LMK if you didn't already figure out), good chance a lawyer wouldn't.

I think you are saying to get an inspection period where I can utilize an inspection report... but also have the bank appraisal done in that timeframe. Say I don’t like something in the inspection and back out because of that (if the appraisal comes in low).

Am I following correctly?

Heres the next thing- I did already have an inspection done and this purchase will be as-is condition, so I think that blows that idea out the window?

@Eric Telese

In 2010 I bought a foreclosure as my primary. All the bank needed to see for a conventional loan was water and electric turned on. This house had 70's carpet, all the light fixtures gone, no appliances, holes in plaster etc. None of that mattered.

@Matt M. Yes it seems that we will be fine for the loan as far as conditions go... 

Now I have figured out their main motive- The seller is trying to basically get me to agree to no appraisal contingency, without doing so within the P&S agreement.. He wants a separate contract that the bank won't see that says something like: If the bank doesn't lend to me on the $410k agreed upon price, I will come up with the difference in the loan they give me to meet 410k.

Is this as absurd as I feel like it is? They are clearly worried that the property won’t appraise for they price we agreed upon. Why would I agree ahead of time to purchase if my bank says it is not worth that amount..

@Eric Telese

Yeah, no way on the appraisal crap. If the house doesn’t appraise, they need to come down in price, you cough up the cash, or walk. Seems like they are being shady

@Matt M.

Exactly. This attorney has his own agenda it seems and is trying to blow up the deal. He is backing me into a corner asking me to guarantee a price even if my bank says its not worth that amount..

Doubt the attorney has an agenda.  More likely they just want it this way because they are trying to protect seller or they are just an a** like a lot of attorneys are.

Question is: 1) can you bring more money to table to close? 2) what's the house really worth / what are you willing to pay? Appraisers are not accurate and do not represent the value, especially when a remodel will happen.

@Eric Telese I would sway towards the lawyer on this one. I why he is wary, I have never heard of an investment loan with that little of a down payment.

He has to make sure that he is dealing with someone who isn’t going to come up short at closing... so I understand his concern.

Have you used the lender to close on a property before?

Really appreciate the input here guys..

@Ben Haab The only reason I say own agenda is because it seems like he may have a buyer. He also has agent friends that he has had by, who of course said to list it for 500+ (without seeing condition of inside). I'm sure he will get a kickback off of their commission for doing repeat estate sales together...

1- I CAN bring more money for sure, but I don't want to because i have a 100k rehab ahead of me, which I want to keep reserves for.

2- It was appraised for 430k and 420k 2 months ago. I honestly think its worth less in this condition, but unfortunately I do believe someone will come along and pay more... I'm using this as a smart primary purchase starter home with good value-add opportunity. Whereas someone else who wants to live there forever may not care about paying a little more, just happy to get something under 500k (which is hard to do in this area right now).

@Robert Tucker I have not used this lender before. I am thinking to get pre-approved with multiple lenders so that if appraisal comes in shy with one, there may be 5 others who will loan on it.

To your statement- "He has to make sure that he is dealing with someone who isn’t going to come up short at closing".

Well I am well approved for this actual mortgage, so getting the loan isn't the issue. It seems that they are just worried it doesn't appraise to the $410k, 3 months from now. Also, how does my down payment make any difference? If he has a buyer who is putting 40% down, and the bank values it at $390k, that buyer is going to ask for a lower price, come up with difference, or walk away, right?

  • -My point here is that he wants to bind me to this guarantee to come up with the difference BEFORE the bank even makes their valuation all because THEY can't close for 3-4 months.