Home Buying in 13811>Question Details

Gregory Alan…, Home Buyer in 13811

When getting a mortgage for a house, do I receive money for assessed value or asking price?

Asked by Gregory Alan Cornelius Jr, 13811 Wed Nov 25, 2009

I am looking at buying a house for 25k that needs work and was last assessed at 40k. Can I take out the mortgage for 40k and use the difference in price to do the repairs? Will the bank do a assessment before giving me the funds?

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You can get a mortgage through various lenders for the mortgage and Repairs. Some examples would be an FHA 203k, USDA -direct and I believe VA. The home will need to appraise at or above the purchase price plus the repair/improvement cost.

The assessment is for use to calculate property taxes and it not a good indicator of the homes market value.
0 votes Thank Flag Link Wed May 15, 2013
Its about the sale price in relation to theappraisal. You can obtain a rehab loan from FHA called a 203K. You make an offer to purchase based on its present condition. Then your mortgage broker arranges for the appraiser to meet with your contractor to determine what repairs will be completed. The appraiser then submits to values, one at current condition and one after repairs. The final sales price is actually determined after all the costs are added up. Your minimal down would be 3.5% of the total acquisition costs and repairs. The assessed value is only for the assessor to determine taxes which usually is recomputed on the new sale regardless of the current tax assessment. Hope this helps!
0 votes Thank Flag Link Thu Nov 26, 2009

You receive money based on the lower of: (1) contract price, or (2) appraised price. In most cases, where the appraisal comes back at or above the contract price, you receive x% of the contract price.

For example: You agree to buy a house for $100,000. The appraisal comes back at $100,000. If you've agreed to put 20% down, the bank will lend you 80% of the sales price, or $80,000. If you're using an FHA program, you're required to put 3.5% down. So the bank would lend you 96.5% of the contract price, or $96,500.

If the appraisal comes back lower--say $90,000--then the bank would lend you 80% of $90,000, or $72,000. Hopefully, you would have had an appraisal or financing contingency in your contract and therefore might be able to renegotiate the contract or get out of it. Otherwise, if you still wanted to pay $100,000 for it and the bank agreed to lend you $72,000, you'd now have to come up with $28,000 as a downpayment.

You cannot take out a mortgage for $40,000 on a house that you'd buy for $25,000. The bank wouldn't lend you the money. It'd lend 80% (or 96.5%, or whatever) of the $25,000. However, there is an exception. It's called a 203(k) loan, in which you're lent the money based on the fixed-up value of the property. However, there are a number of strings attached--money has to be held in escrow, work has to be done by licensed contractors, etc. But that may be what you're looking for. Check with a good mortgage broker.

As has already been pointed out, assessed value is absolutely meaningless. It's used for tax purposes, not to determine the value of a home. Where I live (Fairfax County, Virginia), the tax assessor's office admits that it considers an assessment accurate if its accuracy is in the low 90% range. That means a property with a true, honest, market value of $100,000 could be assessed anywhere between $92,000 and $109,000 (approximately) and still be considered accurate. You tell me: How would you feel about spending $100,000 on a house, based on its assessment, and find out it's only worth $92,000? And that's with what the county considers an ACCURATE assessment.

Hope that helps.
0 votes Thank Flag Link Thu Nov 26, 2009
Don Tepper, Real Estate Pro in Fairfax, VA
Greg it sounds like you looked at the tax assessed value of the property. That has no bearing on the appraised value. If you go with a 203k loan you can get money placed into escrow to do repairs to the home. The value of the loan may be a challenge because FHA loans are capped percentage wise on the fees that can be charged a borrower and at 40k ir may not be a high enough amount to cover normal transaction fees.

Good luck
Web Reference: http://www.Find1Home.com
0 votes Thank Flag Link Thu Nov 26, 2009
The bank does an appraisal on the property. If the property appraises for $40,000 they will not give you a check at settlement. When trying to pull money out of a property that is called a home equity line of credit and you can discuss that with the mortgage lender.

But if you are looking to do reno work on the house, I would look into what is called a 203k renovation loan. So if you buy for $25k and it needs that $15k in reno work and will appraise for $40k after repairs, than this really is one of the better options out there.

Just check to see if it qualifies with a lender as I dont know if there is a minimum loan amount. Dont know if there would be but always good to talk to a mortgage professional.

Sean Dawes
Web Reference: http://www.SeanDawes.com
0 votes Thank Flag Link Wed Nov 25, 2009
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