I came across a customer question this morning. A potential buyer had some confusion about the terms assessed value and appraised value. He asked if the home that he bid 119k on but was "appraised at 53k" would be OK to purchase and would the bank loan him the 119k. This happens a lot with buyers, so I thought I'd share. Here was my answer:
Hi JC,
I have a feeling that you are looking at the field in the listing for the "assessed value". That is the township's assessment of the value of the home at a certain point in time. In NJ that assessment date can be as far back as 10 years so it often does not accurately reflect the current market value of the home.
Yes, a bank will lend more than the assessed value, as (in NJ, anyway) it is often inaccurate and too low -not reflective of the market value of the home -- but it must appraise.
Here's the process: Once you place an offer on a home, your lender will send out an appraiser. He or she will look at recent sales comparables and other factors to determine a value. As long as the home appraises for what you offered or more, then you're fine. So in a case where a home is assessed at 53k, the asking price is 135k and you offer 119k, as long as the appraised value is 119k or more - you'll get the loan (subject to other qualifying factors).
However, NO, a bank will not usually lend more than the appraised value of the home. It's just not good business to do so. You could pay the difference of the contract price and appraised price - but that's just not smart (unless the difference is miniscule, and I'd never recommend that a client of mine do that - especially in this market).
That said, there is something called an FHA 203-k rehab loan which will give you additional money to fix up a property, but I believe the limit is 35k over the contract price. The property has to be able to appraise at total of the contract price + cost of repairs when all work is done. So, in a simplified example: If you're offering 50k on a home and it needs 30k in repairs, as long as the value of the home will be equal to or greater than 80k when all repairs are done, it will be eligible for the FHA 203k loan. Of course there are other limits and guidelines to this program. If you need information on good mortgage loan officers, I can provide you with a few referrals. Give me a call or shoot me an email.
Kim
email: kim@kimcanhelp.com
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