Appraisal and closing costs question. Mortgage professionals please help.

[Anonymous]

So I made an offer of $169,600 on a property that was $160K asking price.  I offered $169,600 and asked for 6% ($9600) back in closing cost credits and prepaids from the seller. I added the closing costs on top of the loan amount to make a stronger offer because it is a bank owned property and banks have not been willing to pay  6% closing costs on some other properties I have offered on. But the dilemma is that the selling agent said the appraisal the bank completed in April 2010 was $162,000.

So anyway my question is will there be a problem with the appraisal and getting funding if the property appraises at only $162K but the purchase price on the contract is $169,600? I am confused because there will only be $159,000 due at closing, which is the purchase price of $169,600 minus the clos costs of $9600 from seller and my earnest money.  Will the number of $159,000 be used for the final number to determine the appraised value versus contract amount or will the property need to appraise at the offer amount of $169,600 to get the loan. Also I will only need a mortgage in the amount of $153,435 after my 3.5% down payment is applied.

Can you all please offer your expertise. Thanks.

[Anonymous]

Anyone????

[Anonymous]

Hi, chr23. I am not an expert. I came to the FICO Forums looking for answers during my frustrating house buying journey. I will share with you what I know so far. From what I read in your post, you are applying for a FHA loan with 6% seller contribution. Your realtor and LO should be your best resources for those questions.

The appraised value is not the home sales price, or money due at closing. Even the appraisal completed by the seller (the bank) in April may not be usable. When you decide which lender you are going to apply for mortgage, an appraiser will survey the house and compare recent sales records to determine the market value of the house. This magic number the appraiser reports to the lender is the appraised value. Your LTV and seller's contribution in percentage apply to the lesser of appraised value and home sales price. For example, if the sales price is $169,600, and the appraised value is $162,000, the seller may contribute up to $9720. However, different loan programs have different percentage of allowed seller-contribution and different rules will apply among lenders. You'd better check with your LO.

[ShanetheMortgageMan]

Rose_Mary gave spot on advice.  The lender uses the lower of the appraised value or the sales price.

So in your situation, if the home appraises for $162k, and you are going with FHA and putting 3.5% down, your new loan amount would be no greater than $156,330.  If the seller is unwilling to budge on the $169,900 sales price, then you'd have to bring in the difference between the max loan amount and sales price, which would be $13,570.