Murphy Mark, Home Buyer in Hot Springs, AR

Bank is appraising higher, do I get to keep extra money?

Asked by Murphy Mark, Hot Springs, AR Fri Jan 14, 2011

There is a house, which on appraisal is actually more than its asking price. So if house is listed for 400k and appraisal is at 500K do I get to keep extra money i.e. roughly 100K for my personal use/investment etc? I do not mind paying interest because it is so low.


Murphy Mark

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Robin Silver…, Mortgage Broker Or Lender, Garden City, NY
Sat Jan 15, 2011
Phil, I am hoping your response was meant as a joke, otherwise it is a bit misleading.
Murphy, please explain what you mean by keeping the extra money? Are you thinking that you can now finance more than the home is worth? A lender will look at either the appraised value or contract price, WHICHEVER IS LOWER.
As far as accessing equity, you would have to find a lender who does not have a seasoning issue, which means how long you have owned the home, in order to access it based on the higher value. Then, they would have to order another appraisal, which may not come in at that high a value. You would then have to pay closing costs again to refinance the property.
It may not be as easy as you must be thinking.
1 vote
Tim Moore, Agent, Kitty Hawk, NC
Sat Jan 15, 2011
I am a bit confused by the question. Like Tony said, you will have $100k in instant equity when you buy the house, you won't have any $100k in your pocket to spend at that point though. The only way to get thatextra money is to get a home equity loan for the equity, but a lender won't likely give you the whole $100k since that would cut it pretty thin. They might give you a home equity for $50k or so. You could also go out and get a 2nd trust on the house for part of the equity that would put some cash in your pocket.
1 vote
Tony McMahon, Agent, WHITE PLAINS, MD
Fri Jan 14, 2011
If you are purchasing the home for 400,000 and it is worth 500,000 than you have 100,000 in equity that depending on your situation you may be able to access via a home equity line of credit or a cash out refinance,. Discuss your options with your current lender.
1 vote
Murphy Mark, Home Buyer, Hot Springs, AR
Sun Jan 16, 2011
Thank you all for wonderful answers with explanation.

Well, this clears major misconception I had. I thought if I am ready to pay interest even though house is worth 400k bank would lend me 500k and then 400k goes to seller and 100k to me, as I do not mind paying interest.
Now I know that to obtain that extra 100k there is waiting period and again I have to refinance.

I have some other ventures going on and ROI on an annual basis is more than 30% so I was interested in using extra fund for those purpose.

In any case thanks for education and help here.

Murphy Mark
0 votes
Monique Belm…, , San Diego, CA
Sat Jan 15, 2011
Hello Mark,

Your lender will only acknowledge the lower of the sales price or appraised value. Thus, the "$100k in equity" remains as equity in the house. Your down payment requirement will based on the sales price since it is lower. You will not be able to access the equity in your house via refinancing until 6 months after the close of escrow. Also, I would be cautious of Phils' answer below. A lender will deny a loan for any pattern of repetitive flipping. Typically, they only allow one sale in the past 12 months (ie. an investor purchasing a home to flip) They will deny a loan if the house has been sold more than once in the past 12 months; some lenders will even require 24 months seasoning. Your best bet is to wait 6 months after you've purchased and then speak to a lender about applying for a HELOC or 2nd TD or refinancing at that time. Beware that you won't be able to tap into 100% of your equity, though. There will be a maximum percentage you can tap into.
0 votes
dave, Agent, Charlotte, NC
Sat Jan 15, 2011

The extra money is strictly equity in the house. You ahve a contract to purchase the home for $400,000. to your benefit the home appraised signifcantly higher than that. Your mortgage company is only going to give you a loan for the amount you have agreeed to purchase the home for at this time.

After you close on the home and the deed is recorded in your name; you can consult your bank about a refinance of the loan or an equity line to tap into the equity in the house.
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Lee Goade, Agent, GALLATIN, TN
Sat Jan 15, 2011

An Appraisel is an appraisers perception or opinion of the property value. It is Not a Liquid asset.

As stated below, if you were to purchase this property, you may then be able to then Borrow against the percieved equity above the purchase price. This percieved amount "if any" would Only be determined by the appraisel done by the actual Lending institution that you apply through.

Tax assessments or 3rd party appraisels have no value in determining how much a Loan co. will Loan on a property. (Assuming that you will need a Mortgage Loan) WTS, chances are very good that if you purchase this property, your 1st mortgage Loan will not appraise much higher then the purchase price and a 2nd will probably be even tighter...

Get a competent Local Realtor to Help you by doing a BPO on th property to see how accurate your Appraisel #'s are to begin with.

Hope this helps!
0 votes
Phil Rotondo, Agent, Melbourne, FL
Sat Jan 15, 2011
Yes you do get to keep the extra money.
All you have to do is purchase the home for $400k and find someone who is interested in purchasing the same home for $500k. Pay the closing costs and the capital gains (if any) and you're home free!
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