Financing in 08081>Question Details

Shanise Grif…, Home Buyer in Sicklerville, NJ

If I was pre-approved for $300,000 and the house was selling for $225,000, can I borrow $275,000 against the

Asked by Shanise Griffith, Sicklerville, NJ Mon May 4, 2009

mortgage using FHA?

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x’s answer
Hello Shanise,

If you are thinking about just the basic FHA mortgage, the answer is "no."

Under current guidelines, FHA lenders will approve a maximum base mortgage loan equal to 96.5% of the purchase price. They will use 96.5% of the "appraisal value" if that value is lower than the purchase price.

This makes sense for 2 reasons: (1) the lender does not want to be on the hook (right out of the starting gate) for a loan that is more than the property is worth; and (2) "YOU" do not want to pay $275,000 for a property worth $225,000. Then YOU would be in a losing position (upside down) right out of the gate.

The pre-approval amount is not related at all to the actual purchase price or appraised value of the actual home you end up selecting. The pre-approval was merely a guide so you and your realtor would know where to focus your search efforts. No need to look at penthouses if your approval is for a townhouse. :-)

Hope things went well.

Carol Lloyd, CLU, ChFC, FLMI
Mortgage Advisor
"In the Business of Educating My Clients About Mortgages"
First Hallmark Mortgage
(856) 728-7100
0 votes Thank Flag Link Sat Nov 21, 2009

Kim is correct. I have sold homes FHA 203k and as long as the home appraises after repairs would be complete for that amount, you cannot borrow more. However, there are many homes at and below your preapproval and I would be happy to assist you in your search. Please feel free to contact me at 856-261-6910.

Janet Larsen, Broker/Associate
Remax Connection
660 Woodbury-Glassboro Rd
Sewell, NJ 08080
Web Reference:
0 votes Thank Flag Link Sun Aug 23, 2009
Hi Shanise,

Unfortunately, the answer is no -- UNLESS you do an FHA-203k and the home would appraise for the 275,000 value after repairs. So in a nutshell (I work with lenders who could give you more details) say you found a home and bid @225 k and the offer is accepted, but you bid low knowing that the home needed some rehab work. Then you have an FHA 203-k approved contractor give an estimate of repairs and that estimate is in the neighborhood of 50,000. As long as that home will appraise for the $275k after repairs, and because you qualify for a mortgage of up to 300k, then yes, you can borrow the additional funds -- BUT ONLY FOR THE REHABILITATION/REPAIRS ON THE HOME. As the other gentlemen have stated, you can not take cash out to use for other purposes. But this is an absolute way to take out more than the price of the home. Give me a call or visit my website and register to search for all homes in the area, Sicklerville and all of South Jersey.
I'm here to help!
Kim Thomas
(856) 308-5989
0 votes Thank Flag Link Mon May 4, 2009
What you are pre approved to buy and the selling price of the home has no correlation other than what you are allowed to buy up to and what the home has appraised. Your pre approval is only buying power. The Banks have rules toward "cash out" purchases and it has to do with how long you have held title. Also some loan programs do not allow cash out. There are loan programs that will provide up to 10K for down payment or 0 down... but that doesnt mean they give you the cash to spend as you wish. The programs allow you to keep your cash... There are income caps also.

For instance if your home is appraised at 225K and the LTV is 80% then the max you can borrow on the home is 180K. you are approved for 300 k buying power. So you can buy this home.
to put it another way...
you buy a home for 390K LTV is 80% 312K is the min amount to buy the home. Your bank will only give you 300K you have to come up with additional 12K plus the difference of the down payment. 20% 78K total need 90K plus closing costs,

I hope I understand your question here and answer it correctly for you. My answer will also go along with the others here too.
Your preapproval does not mean you can arbitrarily borrow that amount on any purchase price. The $300k is your buying power only. If I were your agent I would advise you consider your purchase options so not to over buy so you are not anchoring your entire life to a mortgage. That is is just and advise. Sure I'd love to sell you a home for $300k but you want ot be comfortable in your payments too. Just a little advise!
There are many buys in Sicklerville at excellent prices.

f I can be of any help please contact me.

Larry Sarlo
Weichert Realtors Turnersville, NJ
Web Reference:
0 votes Thank Flag Link Mon May 4, 2009

For the vast majority of residential home purchases, the lender will use the lesser of the purchase price or the appraised value in order to determine the loan-to-value (LTV). I doesn't seem fair, but that's the way it is.

Your lender can tell you what the maximum permissible LTV is for the program on which you're qualifying.

Good luck and let me know if I can be of service.

Best regards,

Rob Spinosa
0 votes Thank Flag Link Mon May 4, 2009
I am sorry to tell you that no, you cannot borrow more than the purchase price of the home on a purchase. Even if the home sold for a dollar, you would need to purchase the home and then turn around and do a cash out refinance. Unfortunately, FHA does not allow cash out on a property within the first 12 months of ownership. More lenders used to offer conventional financing basing the loan on the appraised value even after 1 day on title, but even that has gone away and 6 months is now the minimum requirement to cash out on conventional financing.

If you have any questions, you are welcome to call me.
Luke Allison
Bank of America Home Loans
0 votes Thank Flag Link Mon May 4, 2009
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