Help, low appraisal ( I am the buyer) ruining my plan.

[Samuel Carmichael]

I have a house under contract as a first time home buyer. 

No money down with Rhode Islands Renewal Program. 
They give you a 20,000 grant to buy a foreclosure. 

Right now I am 1360 dollars into the deal. 

Keywords: Rhode Island, Pawtucket, FHA, Creative Financing, Foreclosure, REO.

Forclosure sale price   170,000

My offer      152,000

Closing costs included. 

+20,000 down payment 

------------------------------

132,000

Here is the problem the appraisal came back today, and although the property needs minor work...it was only 158,000. This property sold for a high in 07 of 215,000, and in 2003 for 195,000. 

I was hoping to buy with 50,000 In equity minimum, and right now even with my 132,000 I am up against a whopping 26,000 in equity only. which doesn't fit into my investment plan at all. 

What should I do? 

I am down to the wire, and only bigger pockets can help. 

[Anthony Thompson]

@Russell Brazil is exactly right, in a traditional transaction the role of the appraiser is simply "make sure the buyer isn't paying over market value and thus, that the lender's LTV is higher than it wants".

You should actually be thankful that the appraisal came in where it did - if it came in a lot higher, it might make the bank rethink the sale and want to pull it and relist it at the higher amount.

As far as your desired equity/debt ratio, 1) go by your own comps (or your agent's if you can't do comps yourself) for the value, and 2) you're going to have to wait a long time to find a 50K equity position on a retail purchase - if I were you I'd be very happy with the 26K. Many people, including investors, would be thrilled to have built-in at-closing 26K equity on their primary residence.

The bigger question is... do you want to live in this house for 5 years? Do you like the neighborhood? If you have kids (or might possibly have any in the next 5 years), do you like the schools? If you rent out the property in 6 years is it going to be an easy rent or a hard one (e.g., unusual layout, not-great neighborhood, bad/no parking, etc.)? Is the neighborhood stable or trending in a good direction?

Sometimes you have to step away from the spreadsheet formulas and think about the bigger picture.