Seller finance difference between appraisal and offer with FHA??

Question

FHA loan product.

If my appraisal came in at say, 250k, but seller insisted on wanting 275, can I seller finance an additional 25k.

Does FHA allow this? I know they specifically do not allow seller to finance a down payment, but I am providing my own down payment, closing costs, and reserves. Thing is, they won’t fund a larger loan with the low appraisal.

If FHA doesn’t allow this, can this type of arrangement be made with seller on the side with seller in form of a promissory note or something else?

Not looking for tips on switching to a conventional loan, getting another appraisal, appealing appraisal, or negotiating purchase price. Already trying all these tactics as well.

Thanks!

Chris Seveney · Answer

@Ryan Newport

Legally no it’s mortgage fraud if you take the extra $ and do not disclose it. If house is worth $250k then I would stick to my guns at $250k price and have the seller come down.

Chances of someone paying $275k are slim as paying 10% over value is more unlikely today.

Also you do not want to strap yourself in as you cannot sell that home. You will have to be there 7-10 years minimum before you can sell it to pay down the principal to get to a point of selling and not paying out of pocket with commissions

Daniel Gibson · Answer

Hi @Ryan Newport how did this play out? I'm in a similar situation (non-FHA) and generally wondering how to go about positioning seller financing as an option to cover a $30k appraisal gap that's come through.

Any insights, related or even tangentially related are very much welcome!

Thanks,

Dan

Ronald Allen Barney · Answer

Although FHA prohibits sellers from providing down payment financing and gifts, the agency allows borrowers to receive money from certain third parties. Sellers are allowed to pay buyer closing costs for an amount not exceeding 3 percent of the sales price. The seller concession is credited to the buyer at closing.