LTV of what ? sale price ? appraised value ? - Posted by Casper

Posted by James Strange on July 28, 2003 at 20:31:06:

I don’t drink light beer so it will have to be a real Bud. LOL

LTV of what ? sale price ? appraised value ? - Posted by Casper

Posted by Casper on July 26, 2003 at 02:43:47:

Hi people,

Do lenders lend at LTV of appraised amount of property, or do they lend at LTV of sale price ?

Assuming I agree to purchase a property for $300,000 and I am able to find a lender who agrees to do an 80%LTV loan on the property. But what if the appraisal on the property comes back, and it is appraised for $275,000.

Will lender lend me 80% LTV of the purchse price ($300,000)
Or will they only lend 80% of the appraisal value ($275,000)

Someone please explain this to me.

When lender say LTV, do the mean LTV of what? LTV of sale price ? LTV of appraised value ?

Thanks

Cas

Re: LTV of what ? sale price ? appraised value ? - Posted by Ed Garcia

Posted by Ed Garcia on July 26, 2003 at 12:33:34:

Casper,

In most cases when a Lender makes a loan against a subject property, it will be based on Purchase Price or Appraised Value, which is ever LOWER.

Your next question:
But what if you are already in contract at a higher sales price ($300,000), but the appraisal comes in lower ($275,000), what would you do? Must you buy the property at the price you contracted for ($300,000), or must the seller sell to you at appraised value ($275,000)?
Casper,
In most cases even if you did not stipulate in your weasel or contingency clauses, that you could get out of it in the event the property did not appraise at the purchase price.
Most buyers will have a finance contingency that says based on loan approval. If the property didn?t appraise for the purchase price then it would affect the loan.
Although you would think it crazy for a person to pay over appraised value, I have seen it done. It takes all kinds of people to make a world.
Ed Garcia

Re: LTV of what ? sale price ? appraised value ? - Posted by Casper

Posted by Casper on July 26, 2003 at 06:11:07:

Hi James:

Thank you for your response.

But what if you are already in contract at a higher sales price ($300,000), but the appraisal comes in lower ($275,000), what would you do ? Must you buy the property at the price you contracted for ($300,000), or must the seller sell to you at apparised value ($275,000) ?

Thank again

Cas

Re: LTV of what ? sale price ? appraised value ? - Posted by James Strange

Posted by James Strange on July 26, 2003 at 04:59:47:

Most lenders lend based on the lower of purchase price or the appraised value.

So in your example you could boorow 80% of $275,000.

Re: LTV of what ? sale price ? appraised value ? - Posted by Casper

Posted by Casper on July 28, 2003 at 20:11:14:

Hello Professor Garcia:

As always you deliver a home run. Thank you, Sir.

Re: LTV of what ? sale price ? appraised value ? - Posted by Bob Davis

Posted by Bob Davis on July 26, 2003 at 11:37:26:

Always make your offer contingent on getting the loan. I think a realestate agent who tells you what your property would sell for should also have their appraiser’s license and do the appraisal. That way no one is surprised. If the agent does not know the value, the property should be appraised before it is ever put on market. This would eliminate a problem down the road.

Re: LTV of what ? sale price ? appraised value ? - Posted by MikePA

Posted by MikePA on July 26, 2003 at 08:11:49:

I was in that situation…under contract for 140k, the appraisal (which was based upon other houses that were not even close in comparison to the one i was buying) came in at 130k…based upon the financing clause in the contract, i told the seller that if he could not come down in price, the deal was done (thru my attorney)…he came down and i bought the house.

Re: LTV of what ? sale price ? appraised value ? - Posted by Casper

Posted by Casper on July 28, 2003 at 20:20:59:

To: James Strange, Mike(NY), MikePA, and Bob Davis. Thank you, guys, for dissecting this one. How do I begin to repay thee ? A Bud light perhaps ? Thanks guys.

Cas

Re: LTV of what ? sale price ? appraised value ? - Posted by Casper

Posted by Casper on July 26, 2003 at 08:57:49:

Hi Mike:

What financing clause are you refering to ? Do you mean the clause which makes the purchase contingent on your ability to obtain financing ?

But what if the seller had refused to reduce the purchase price ? What if the seller had insisted that he wanted the contract price of $140,000 (in your example). Now assume further that for this reason you had refused to go ahead with the purchase, what happens to the monies you have had to expend, such as appraisal fees etc ?

Another question is this: Is it possible to get a “second opinion” on the property appraisal. That is can the seller contend that the first appraiser has it all wrong. Can the seller insists on a second appraisal by a different appraiser ? What if the seller/ or even you (Mike) retains another appraiser, and the second appraiser subsequently appraises the property value as $150,000, then what? So we would have Appraiser No. 1 saying $130,000; Appriaser No. 2 saying $150,000; and seller wanting $140,000. Which appraisal should/ or would the lender accept ? This is probably an unlikely scenario, but it would be interesting to find out what would happen in such a case…

Everyone feel free to jump in on this one…