Financing in Detroit>Question Details

Chris, Home Buyer in Royal Oak, MI

Where house bought $30K below appraised value is a downpayment needed?

Asked by Chris, Royal Oak, MI Sun Nov 4, 2007

If so, why?

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Chris, there is no relation between the appraised value and down payment, Down payment shows both, the lender and seller the strength of the buyer. Either way, you can apply for 100% financing. It is still available but most of the time with full documentation only.
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2 votes Thank Flag Link Sun Nov 4, 2007
Artur Urbans…, Real Estate Pro in Burlingame, CA
Artur is right, it does not count as a down payment. Knowmatter what the appraisal value is the bank will always qualify you based on the purchase price. The bank lends money based on the loan to value of the property. The loan to value is based upon the purchase price not appraisal, meaning if a house is purchased for 70K but appraised at 100K. The bank will lend on the value of 70K only. So if you do a 100% financing, or put money down it will be towards the 70K. There are ways to use some of the equity towards closing costs or repairs if the seller is willing to credit you a percentage for those things. Usually your realtor will work out the negotiations.

There are banks that allow some seller carry situations, or if it is a family member gifts of equity. In those situations you would make the purchase price for the appraised value and the seller would carry the other percentage or credit it. Your best bet talk to a mortgage broker, and experienced realtor that have done deals like this before.

Also the reason why banks don't see the equity as down payment is due the fact that they like to see that you have some vested interest in the property. It is easier to qualify when you are actually putting something down or into the property. It is harder to walk away from something you have actually put into and not something you were given. The bank doesn't want people to walk away from there loans and let them foreclose.

Good luck.
0 votes Thank Flag Link Sun Nov 4, 2007
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