Financing in 90019>Question Details

Mday83, Home Buyer in California

Lender breaking rate lock due to low appraisal. Can I get them to honor it?

Asked by Mday83, California Wed May 18, 2011

Okay, so I locked in my interest rate based on a purchase price of $235,000. The lender's appraiser came back with a value of $200,000, which both my agent and I feel is very low due to the appraiser using comps in a high crime, lower value area more than a mile away. Now the lender is using this as a justification to get out of the rate lock and revert to current rates, which are higher. Can they do this?

The lender did make me sign a rate lock agreement stating that the lock only holds as long as the property value on the loan remains the same. The lender probably instructed the appraiser to come back with a low value (in fact they have a reputation for low appraisals) in order to get out of the rate lock. Is there someone I can complain to, or something I can say to them to get them to honor the original lock? Thanks for any help.

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Lenders don't instruct appraisers on value. The home valuation code of conduct (HVCC) is a law that went into effect to prevent exactly such a thing. If your appraisal comes in low, it changes your loan to value and thus the pricing would change. It's not a conspiracy, it's just the way things are. You could always dispute the appraisal but that usually is not successful. If you truly believe the appraisal is flawed, you could always go to a different lender and re-submit your file. If you locked anytime prior to last week the odds are that the rate you locked is higher than current rates anyway so you may end up with a better deal than you had before.

Please note that just because the appraisal came in low, it does not mean you cannot close what you already locked. You could bring extra funds to make up the difference, you could have your agent re-negotiate the contract price, or you could close at the higher rate. There is always risk in starting over so you will need to weight the pros and cons.
Web Reference: http://WeFixRates.Com
2 votes Thank Flag Link Wed May 18, 2011
Did you receive a rate lock confirmation from the bank that would be lending you the purchase money? I don't think so. When a rate is locked, it doesn't change for anything. It can only expire when the term of the long is over.

Your choice is either to come up with the difference or see what your agent can arrange with the seller. If your purchase was contingent on appraised value you should be able to receive your earnest money deposit back.

Happy funding, Rudi
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1 vote Thank Flag Link Wed May 18, 2011
Interesting. Well, it is true that rate locks can be broken if the purchase price or loan amount changes beyond a certain threshold, such as ten or fifteen percent. If you signed an agreement to that effect, I would say that you have no recourse here as far as the rate lock is concerned. That was the deal going in, you knew about it, and you signed it. I would be surprised if the lender instructed the appraiser to come in low - lenders have very little communication with appraisers these days, and it just doesn't make any sense anyway. The last thing a lender wants to do is blow a deal and lose out on a commission.

The bigger problem you are facing is a purchase price that doesn't match up with the appraised value. This means you will have to come in with more cash to close as the lender will only lend against the appraised value. If you are still within your contingencies, you may want to re-evaluate whether you want to move forward with this transaction or not.

If you have any further questions, please feel free to contact me. Good luck.
1 vote Thank Flag Link Wed May 18, 2011
Brimaz1 Asked:

"i had a rate locked in with my investment bank, we going to close next week and he tells me the rate has changed from 3.75 to 4.125, i told he we have signed pns that states my rate. he told me the bank they use never recieved his rate lock and they would not alow us that rate. what can i do?"
You will need to look at your GFE to see what it says. What dates does it show on page 1 pertaining to the rate and fees? It should list a "good through" date for each and depending on what it says, you may have a valid complaint.
Web Reference: http://WeFixRates.Com
0 votes Thank Flag Link Tue Mar 12, 2013
i had a rate locked in with my investment bank, we going to close next week and he tells me the rate has changed from 3.75 to 4.125, i told he we have signed pns that states my rate. he told me the bank they use never recieved his rate lock and they would not alow us that rate. what can i do?
0 votes Thank Flag Link Tue Mar 12, 2013
Based on the Case-Shiller Real Estate report showing a 1% per month decline in Los Angeles house prices, the appraisal done 2 months ago is probably too high, and your purchase at $235,000 seems like a bad deal.

DAVID COOPER. Foreclosure and Bank Owned REO Buyer's Agent at Vertical Realty-Las Vegas. For your freee list Call +1-7024997037 or check website
0 votes Thank Flag Link Fri Jun 3, 2011
Only if you are willing to cover the difference in the price with your own funds.

I would love to discuss this more in detail with you and the opportunity to earn your business.

Thank you.

David Akram
Realtor, DRE# 01891274
Century 21 All Moves
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0 votes Thank Flag Link Thu Jun 2, 2011
If you make up the difference in cash so the loan to appraised value is the same as your original LTV at the time of the lock I believe the lender would be obligated to honor the rate lock. My guess is you are not willing to increase your down payment by $35,000.
0 votes Thank Flag Link Sun May 29, 2011
Why in the world would you want to pay $235,000 for a house appraised at $200,000?? I see you justify the price by degrading the appraisal, the same thing could happen when you want to sell. and being in a high crime area a mile away doesn't seem that far away from effecting your value

David Cooper. Las Vegas Investor in Bank Owned REOs at 20% off. Freee list
email: Call _1-7024997037
0 votes Thank Flag Link Sat May 28, 2011
The main objective here is the property value, or the rate. my question is what has more weight in your perspective, the rate or the or the price?, if you are going to make 10 to 15 % on the price what is the difference to pay up 1 to 2 % higher in the rate.
mu suggestion for you is, do the numbers and see where is the most advantage for you.
Good luck and Happy funding.
Angel J. Hernandez
Prudential California realty
0 votes Thank Flag Link Mon May 23, 2011
My opinion is that the bank is not sitting there conspiring to bring in an appraiser who will do lower value in order to break the lock... things do happen, and appraiser do miss the ball... you said it in your question that you signed something stating they have the right to cancel the lock...

Best of luck!
Close it and get ready for decorating :-)
0 votes Thank Flag Link Wed May 18, 2011
If you locked a rate lower than 4.0 fixed for 30 years, then, you were getting a great rate. Otherwise, you are better off shopping around for a better rate.

By the way, lenders order their appraisals through their pool of appraisers who are independent from lender's control; they don't know who is going to do it.

Best wishes,
(323) 285-8864
0 votes Thank Flag Link Wed May 18, 2011
Are you planning on contributing the difference? The loan officer wants to close the deal so there may be other factors at play in addition to the rate lock. Contributing the difference means your percentage equity is higher so risk is less to them. Something else is going on.
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0 votes Thank Flag Link Wed May 18, 2011
Since rates have been falling recently, I don't see how your new rate could be higher. Sounds like it's time to shop around for a new lender.
0 votes Thank Flag Link Wed May 18, 2011
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