Mortgage Updates

The days of adding unlimited "upgrades" to your new home purchase seem to have run amuck with real estate appraisers using the deflated values of the foreclosure market when measuring the value of your dream home.  Never mind that the foreclosure was a "beater" and needed to be rebuilt... painted, new appliances and flooring.  The minimal difference ascribed for condition by some appraisers can really hurt your lender's ability to provide maximum financing.

Even in a good market not all possible upgrade options will reflect in a higher appraised value for your home.  If most homes sell with tile counters, you won't get a higher value by matching the "upgrade"  Do you realize that opening a wall to create a nice master-suite can actually lower your value, because your bedroom count is now reduced. So how will a lower appraisal affect your purchase? 

Lenders base loan- to -value  (LTV) on the lower of the two numbers.  If the sales price is lower than the appraisal then "no problem" all things stay the same.  However, if your value comes in lower then your new LTV is based off the appraisal and NOT the sales price.  If you are planning on a 3.5% minimum down payment - your down payment will now increase by the amount of the short fall, if you continue with the purchase transaction.

Over the last year I have seen this happen several times.  When it did occur, the buyers had already been prepared that this was a possibility and when making their selections were prepared to come in with the additional funds -if that possibility played out.  They really wanted what they wanted and were prepared to pay the additional "cash" for the items.

It pays to work with a lender that does new home lending on a regular basis and works with appraisers that are knowledgeable in the new home market as well as the resale market.  Admittedly, it is difficult when all "outside" comparables are distress or foreclosure sales but knowledgeable professionals can minimize the damage.

"The National Association of Realtors says nearly one in four of its members has reported clients losing a sale due to botched appraisals. The National Association of Home Builders, meanwhile, said low appraisals were sinking a quarter of all new home sales and argues it's not fair to compare distressed properties to brand-new homes." Excerpt from http://abcnews.go.com/Business/wireStory?id=9468512