I work in NJ, which is an â€œattorneyâ€ state and I have dealt with a few contracts that have failed to meet appraisals. My experience with this has been a few years back and during the days of a sellers market. Absent a specific clause about appraisal, the mortgage contingency clause might give an out for a buyer. Since I am not an attorney, and I do not have a copy of your specific contract, this is not legal advice. I will relay what I have seen and experienced.
Your question is really two part. Legally, what can you do? Practically and financially, what is the best decision? If your contract only has a mortgage clause, were any terms such as rate or type of loan defined? Were you pre-qualified? Did the loan officer discuss with you any loan programs and provide a pre qual based upon that criteria? Based upon your earnest money and down payment, does the contract reflect that your offer and purchase were predicated upon an LTV of 80/20? If you failed to meet the loan you intended, the mortgage contingency may allow you the out. If the intended 80/20 loan now was not possible, the alternative loan and interest rate at a different LTV may place the payment beyond the reach or willingness of the purchaser. This depends upon the terms of your contract, and, again I am not an attorney. I have seen of contracts terminated based upon the above.
You mentioned that your loan does not require you to put down 20%. I interpreted that to mean that your creditworthiness allows you to qualify for a loan with less than 20% down. What alternative loan programs for which you might qualify is relevant only as it applies to the terms outlined in this purchase contract. Does your contract reflect purchase terms of you placing 20% down and financing 80%? While you might be creditworthy of alternatives, the contract, as written and accepted may fail to pass â€œgo.â€
During a sellers market of multiple offers and paying over list price, a common seller request was to have a clause written in to a contract stating that a buyer agreed to the purchase even if the property failed to meet appraisal. It was specifically written in that failure to secure the intended type of loan based on LTV did not grant the buyer rights to walk. The mortgage contingency remained in the contract to protect the buyer in the event of other circumstances that might prevent the buyer from obtaining the loan. The â€œdoes not need to appraise upâ€ clause was added, even though there was no other term of the contract that ever addressed appraisal amount. The added clause was to define the mortgage contingency waiver.
Practically speaking, do you still want to purchase this property? Do you have an agent that you can discuss this with? Even in NJ, where we have an abundance of attorneys who specialize in real estate law, these attorneys do not walk the properties, know the competition and are not able to discuss alternatives the way a full time Realtor can. If you have an agent representing you, what is his/her advice? If you havenâ€™t a Realtor, take a look at the alternative offerings.
You also mentioned that your attorney advised you to stop second guessing yourself. Perhaps you are nervous and have analyzed other â€œwhat-ifsâ€ and your attorney simply made a general statement to you that becoming a homeowner is a wonderful thing. If, indeed, there are any problems with appraisal, your attorney will dive further into discussion with you at that time. Itâ€™s common for first time home buyers to become a bit nervous and ask the â€œWhat ifâ€™sâ€ So, I will close with.....â€What if the appraisal comes in higher that the purchase contract?â€ It might.
Best of luck to you.