The common declaration by home sellers when a home underappraises is, “Well, it only under-appraised by $10,000, so that shouldn’t be a problem. The buyers are putting $15,000 down.” Unfortunately, lenders do not typically want to lend the entire amount of the appraisal.
For example, a buyer may apply for a loan program that requires a 10% down payment, called a 90 LTV loan. This means that the lender will loan up to 90% of the appraised value or the sale price, whichever is lower. If the home sells for $250,000, the buyer is expecting to put down 10% of that amount, or $25,000.
Additionally, the buyer may have 6% in borrowers’ closing costs, adding another $15,000 to what he or she needs. The buyer has $42,000 in his or her savings account, so he or she is fairly certain he or she will be able to close. The appraisal on the home comes in low at only $238,000.
That means the lender will only loan 90% of that $238,000 or $214,200. Now the buyer will have to come up with the $12,000 difference between $238,000 and $250,000, plus the 10% of $238,000 which is $23,800, plus the 6% closing costs.