Frequently Asked Question: Help With an FHA Loan
Q: I am looking to sell my home 'For Sale by Owner' (FSBO) and got an appraisal done by a licensed appraiser to help evaluate what is a realistic value for my home. I wanted to get an idea what kind of loan my buyers my qualify for. The range he gave was broad, but he highlighted that if this were done for an actual loan, his appraisal would have been for $315,000. Assuming I had an offer out there of $325,000, and the home actually appraised for $315,000, does this mean the buyer could get a loan for up to $315,000 and his 3.5% down payment would make up the difference? Or does the appraisal set the home's value at a fixed point and you back out the 3.5% down to get the loan value. In other words, would an appraisal of $315,000 allow only for a loan of $303,975?
A: Lenders base mortgages on loan-to-values (amount of loan / value or purchase price) on the lessor of the sales price or the appraised value. If you sold your house for $325,000, but it appraises for only $315,000, and assuming the buyer is going FHA and still wanted to purchase the house without renegotiating the price, then the buyer would need to put down an additional $10,000 on top of the 3.5% required downpayment, which is $11,025. In this case, the maximum loan amount would still be $303,975 (96.5% of $315,000), and the buyer would have to put down $21,025.
If the house appraised for less than the sales price and if you don't renegotiate the purchase price down to the actual appraised value, then a buyer could "walk away" from the purchase agreement and would be entitled to any and all funds that are held on deposit to be returned to him. By selling a home for more than it will appraise for, you're wasting both the buyer's time as well as your own. It's always best to price the house properly.
As you already have a recent appraisal, why not price your home according to the appraisal? You could always show the appraisal report to prospective buyers to show that the house is priced according to market. But expect buyers to still want to negotiate with you because they know you're saving on the real estate agent's commission, and most likely would expect you to pass on some of that savings to them.
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