A friend who recently closed on a house at a favorable price compared to the local market shared the following experience:
Since the appraisal came in significantly above the purchase price, his lender was happy to calculate the loan-to-value ratio for underwriting purposes based on the appraised price rather than the contract price. As a result, the lender gave him a bigger loan and he ended up with a minute down payment requirement.
In the past I had been under the impression that LTV was always calculated at the lower of contract price or appraisal ... is my friend's experience typical? Are there lenders / programs that allow this?
