We didn’t waive the appraisal contingency and sure enough it came under 15k of our offer. Luckily the sellers were moving out of state and didn’t counter and took the lower price! We got lucky!
Thanks for explaining this. My poor nephew and fiancé keep losing houses with this, on top of buyers waiving inspections, and short closings. They lost a house were they told the seller they would waive the rent, the seller had to rent the house from the buyer until Sept. These are nice homes but they're older homes.The buyers out there are nuts!
I luckily didn’t waive my appraisal as it came in 43K below our asking. I was in a world of hurt. We split the difference and I paid 12K out of pocket. My purchase price was 343k. Fast forward in my neighborhood the same model house would sell for 352K and kept going up. A few weeks ago same model sold for 410K. House market is still hot in south Florida. It would be tuff making a purchase today with these crazy interest rates.
Hey Kyle, I just got my license in February and I gotta say there are not a lot of resources on UA-cam for lenders and what is out there looks like it was recorded on a flip phone in 2007 so the quality of your content is so refreshing. The mortgage industry can seem very hectic especially right now and it could really use your asmr vibes😂. I also wanted to say I read some of your comments and it’s so clear that your priorities are with people and what’s best for them, not with just getting as many loans closed as possible and getting payed as much as possible. A good example of this is your response to the comment saying “I’m not ready to win the house I love yet” on this video. You told them to move on there time line instead of trying to encourage them to do it now. A lot of lenders are the exact opposite and they seem like sales people just trying to close the deal. I aspire to have standards like yours. Can you do a video on homestyle loans. I am trying to compare 203k and homestyle and I watched your video on 203k but I didn’t see anything for homestyle. Love the content! And P.S. I’m in Columbus so maybe we’ll cross paths one day.
Wow! Congratulations with your license and yes, most of the time... we need to be realistic with what we say to people or our clients. We don't want to sugarcoat and give them false hope. I will be putting your suggestion on my to do list. See you around. :)
Wow, thank you for taking the time to make this video! I recently passed my licensure testing and became an IL Real-Estate Broker. I was iffy on appraisals and appraisal gaps and let me just say, this video helped so much! Thank you!
Congratulations! I'm glad my videos are helping people who want to buy a home and also people like you who work in the same field as mine. Thanks for watching. :)
Thanks for the helpful video! My wife and I bought a house recently and are glad we used an appraisal buffer. Another couple had a higher offer than ours but we had better terms!
Down here in Colorado probably California too, majority of buyers does appraisal gap. All of the bid I did 2 months ago have appraisal gap, free 60 day stipulation(free rent), double earnest money, inspection waver. These are common, if you can't do this then good luck. You do not talk to the appraisal person, you have no say in his/her in valuing the house and no string with that person. Appraisal will see your contract and base off of condition of the house and the comp (how much recent house around there sell for that is like yours), the appraiser will value your home. Again you have no say so. I offer everything above with 45k over listed, appraisal went 2k above my offer. Luck for me I didn't have to pay extra out of pocket. Even if it under appraise, my loan officer and realtor is ready and have plan in place to void my contract. I was not worried about loosing my earnest money LOL. I know I was lucky to have them. Most don't pay the appraisal gap if the value of the house is less then you offer, they just void their contract. Everyone play this game. Know your realtor and loan officer.
@@gabrielar9611when you waive the appraisal contingency, which is very common the last year and a half, you have to be creative on how to get your EMD back. There are ways to do it, but it might mean you have to change lenders for the next home you go for. Depending on your LO.
Never knew you could use part of your down payment (if more than 3%) towards the gap. Now, does the verbiage have to be included in the contract in order to use it or will the lender or agent convey this to the seller’s agent?
For sure! Basically instead of putting that money toward the down payment you just put it towards the gap! The seller does not have to know. You will need to make sure with the lender that you can still qualify at a lower down payment and (of course) the monthly payment will be slightly higher if you lower the down payment.
If the gap is in the contract the seller knows the property won’t come it at contract price. Guaranteed. If it’s a counter than it’s the seller being more honest.
@@mulliganstew72 the sellers that want a bidding war under list the property most times. That way they get 20 or thirty buyers, and they buyers know there are 20 or thirty offers being submitted so that is where the high bidding comes in. In those cases they wouldn’t put an appraisal gap in the contract, but a counter. Like they list at 300k thinking it’s worth 340k. They accept a 350k offer as the best one. When they accept they counter that if the house doesn’t appraise at 350k, they want assurances that the buyer will still pay that 350k. So they might put a 10k gap in their counter offer. When the original contract states a contingency for appraisal gap and they buyer will come out of pocket for the difference, it usually means they know the appraisal won’t value the contract price, but they want that contract price money.
@@drewcoleman738 ahh thank you for explaining. That’s what happened in my purchase situation. It listed for 300 K we offer 310 they said they had an offer for 330 we raised 332, won bid and had a plus/-10% Appraisal contingency. There was also other verbiage that made it nearly impossible to back out without losing $ but I don’t remember what it was…(My mother, God bless her helped me since I was buying sight unseen & she wasn’t perusing contract terms w/a red pen like I was Lol) It appraised on paper, (No in person appraisal) so I’m going with that. Now I’m selling so I will keep this in mind. Thanks a lot for the explaining to me!
Hi Kyle as always really nice video , I’m a new LO here in FL , can you help me ? I want to start doing some videos for the Spanish community and I wonder what program you use to record and share the screen as you do , 😊😁
We close tomorrow on our home! The appraisal gap won us the property. There were 18 offers and we offered $40k over asking with $25k appraisal gap. It came back $20k short, we understood the risk of this but it also allowed us to have a lower monthly payment since we kept our down payment at 3%. Might not work for everyone and can be scary but we don’t plan on selling for a while and are comfortable with the payment. Thanks for all of your videos, helped us a lot throughout the process!
10:23 The Purchase Price minus the down payment will leave the loan amount to be below the appraised value. Why does the 10K gap still need to be paid if the loan will be lower than the appraised value? 2nd question, the 10K is added to the down payment amount in the contract to cover for the gap?
Using the last example of a 425k purchase price/ 5k appraisal gap, if the appraisal comes in for anything at all lower than 425k, does the buyer still have an option to back out of the contract? So, if it appraises for 422,500, are they obligated to pay the 2,500 gap since it's within the 5k they agreed to pay or is there a loophole where they can still back out? Or, is the only guaranteed way to keep someone locked into a contract to have them waive the appraisal contingency, i.e. full appraisal gap?
It benefits the lender for us to cover the gap. Should you be unable to make mortgage payments in the future, the gap came out of your pocket and they can turn around and resale the home.
I'm a bit confused. Is the issue that the lender won't lend more than the house is appraised for, or that the lender will only lend based on a percentage of the appraisal value? If a buyer agrees to buy a house for $100K with a $90K loan, but the appraisal is $95K, is this a problem? Because the lender would still be lending less than the appraised value of the house, so there shouldn't be any issue? Or is it because the lender calculates loans based on percentages? For example, if the house is appraised at $95K, the lender might only offer 90% of that value (because initially, they agreed to loan 90% of $100K), which would be $85.5K. Consequently, the buyer would need a larger down payment ($14.5K instead of $10K) to reach the $100K purchase price. In that case, why can't the buyer ask the lender to increase the loan from 90% of the $95K appraised value ($85.5K) to $90K so the buyer still only has to put down $10K rather than $14.5K?
Loan risk is based on the loan-to-value ratio. Lenders have a maximum amount they will lend given the value of a property. That max amount is based on the loan-to-value percentage. To find the value, they use the lower or the appraised value or purchase price. On Conventional loans the max LTV is 97%. So in your example, if a buyer wanted to do 10% down, but the appraisal came in short, the buyer could request the lender run the loan at a lower down payment (3%) to help. If the house appraised at $95,000, then the max loan could be $92,150 ($95k * .97). To get to $100,000 purchase price, the buyer would need a $7,850 down payment.
We're putting 20% down so gives us a lot of wiggle room to play around with the appraisal gap. Being able to tie it to your down payment is hopefully helpful 😂
An adjustable rate mortgage is just what it sounds like. The most popular (from years past) are called x/1 arms. They started out at 1/1 and went to 10/1. Meaning the first number is how many years you are locked at the closing interest rate. Keep in mind, you have to qualify at around 3 higher that the actual rate (shock rate). Once the initial lock period ends, on the x/1 s, your interest rate varies off prime (or LIBOR or whatever the lenders use) every 12 months. There are three lender (but only one that FNMA buys from them) that offer a 5\5 (so locked for five years, than adjusts, then locked for 5 more year…). There is a lender that used to do a 15/15 arm, which is like the best one I’ve ever heard of. You have to think about how long your going to be in the home and what you think rates are going to go. Usually arms have lower closing costs, which is why they were so popular
If I don’t put an appraisal gap and the house appraises lower than what I offered, or like you said, the appraisal came in way lower than what I said I would cover, I can back out. If I back out in those cases, do I get my escrow money back?
Make sure contract says you can back out Without recourse if the appraisal isn’t on target. Mine had verbiage along the lines of as long as it appraises at +/- 10% of offer, the deal moves forward…Banks will sometimes just look at the market on paper and see what similar places are selling for in the area without doing an in-person appraisal, thus you don’t pay for the appraisal but you also really don’t know the true value of the place. In my view, it seems all parties want the deal to move forward as I haven’t heard of many low appraisals and feel the whole “appraisal gap” is more a bidding war tactic to drive up costs. Look closely at the contract & make sure you’re not on the hook for anything that doesn’t sit well with you. You don’t want to buy something that’s under-appraised & have to sit on it for years only to break even. Your buyers agent wants you to purchase just as much as the seller & their listing agent does, so they won’t always point out contractual nuances that make it nearly impossible for you to back out of the offer contract. It’s up to you review carefully (take out your red pen lol), ask questions & request modifications during “due diligence” process (this is the first few days the offer’s accepted). If you’re reasonable, The seller will probably want to make it work with you vs re-list & start anew.
Honestly...IF an appraiser sees the sales contract with this baked in GAP, that will give him more leverage to reduce his appraisal...Everyone knows that to be a FACT
A gap is not a valid data point on an appraisal. An appraisal doesn't start with a price and then get reduced. A price is assembled base on comparable homes.
Appraisals are garbage. They’ll make it worth whatever the mortgage is. All these people are in Kahoots… the realtor, the appraiser, LO, the inspector… they just want to keep getting paid…
We didn’t waive the appraisal contingency and sure enough it came under 15k of our offer. Luckily the sellers were moving out of state and didn’t counter and took the lower price! We got lucky!
Thanks for explaining this. My poor nephew and fiancé keep losing houses with this, on top of buyers waiving inspections, and short closings. They lost a house were they told the seller they would waive the rent, the seller had to rent the house from the buyer until Sept. These are nice homes but they're older homes.The buyers out there are nuts!
It's tough out there!!
@@WinTheHouseYouLove That particular house 26 offers! SMH
I luckily didn’t waive my appraisal as it came in 43K below our asking. I was in a world of hurt. We split the difference and I paid 12K out of pocket. My purchase price was 343k. Fast forward in my neighborhood the same model house would sell for 352K and kept going up. A few weeks ago same model sold for 410K. House market is still hot in south Florida. It would be tuff making a purchase today with these crazy interest rates.
Hey Kyle, I just got my license in February and I gotta say there are not a lot of resources on UA-cam for lenders and what is out there looks like it was recorded on a flip phone in 2007 so the quality of your content is so refreshing. The mortgage industry can seem very hectic especially right now and it could really use your asmr vibes😂. I also wanted to say I read some of your comments and it’s so clear that your priorities are with people and what’s best for them, not with just getting as many loans closed as possible and getting payed as much as possible. A good example of this is your response to the comment saying “I’m not ready to win the house I love yet” on this video. You told them to move on there time line instead of trying to encourage them to do it now. A lot of lenders are the exact opposite and they seem like sales people just trying to close the deal. I aspire to have standards like yours. Can you do a video on homestyle loans. I am trying to compare 203k and homestyle and I watched your video on 203k but I didn’t see anything for homestyle. Love the content! And P.S. I’m in Columbus so maybe we’ll cross paths one day.
Wow! Congratulations with your license and yes, most of the time... we need to be realistic with what we say to people or our clients. We don't want to sugarcoat and give them false hope. I will be putting your suggestion on my to do list. See you around. :)
Where was this when I needed it three weeks ago. Thank you for this clear explanation!
Glad it was helpful!
Wow, thank you for taking the time to make this video! I recently passed my licensure testing and became an IL Real-Estate Broker. I was iffy on appraisals and appraisal gaps and let me just say, this video helped so much! Thank you!
Congratulations! I'm glad my videos are helping people who want to buy a home and also people like you who work in the same field as mine. Thanks for watching. :)
Thanks for the helpful video! My wife and I bought a house recently and are glad we used an appraisal buffer. Another couple had a higher offer than ours but we had better terms!
Thanks for sharing this, also thanks for watching. :)
I'm not ready to win the house I love but Kyle your videos are diffently educating me for when I'm . so please keep these great videos coming.😊
You'll be ready on the timeline that works for you :) I'm glad to help!
Down here in Colorado probably California too, majority of buyers does appraisal gap. All of the bid I did 2 months ago have appraisal gap, free 60 day stipulation(free rent), double earnest money, inspection waver. These are common, if you can't do this then good luck.
You do not talk to the appraisal person, you have no say in his/her in valuing the house and no string with that person. Appraisal will see your contract and base off of condition of the house and the comp (how much recent house around there sell for that is like yours), the appraiser will value your home. Again you have no say so.
I offer everything above with 45k over listed, appraisal went 2k above my offer. Luck for me I didn't have to pay extra out of pocket. Even if it under appraise, my loan officer and realtor is ready and have plan in place to void my contract. I was not worried about loosing my earnest money LOL. I know I was lucky to have them. Most don't pay the appraisal gap if the value of the house is less then you offer, they just void their contract.
Everyone play this game. Know your realtor and loan officer.
Good input!
The “plan” they have to void the contract is called a contingency
@@gabrielar9611when you waive the appraisal contingency, which is very common the last year and a half, you have to be creative on how to get your EMD back. There are ways to do it, but it might mean you have to change lenders for the next home you go for. Depending on your LO.
@@drewcoleman738 no one said anything about waiving an appraisal…
Never knew you could use part of your down payment (if more than 3%) towards the gap. Now, does the verbiage have to be included in the contract in order to use it or will the lender or agent convey this to the seller’s agent?
For sure! Basically instead of putting that money toward the down payment you just put it towards the gap! The seller does not have to know.
You will need to make sure with the lender that you can still qualify at a lower down payment and (of course) the monthly payment will be slightly higher if you lower the down payment.
I really appreciate your clear and calming way of explaining these things!! Thank you so much!!
You are so welcome!
If the gap is in the contract the seller knows the property won’t come it at contract price. Guaranteed. If it’s a counter than it’s the seller being more honest.
Good point!
Not necessarily if there’s a lot of bidding going on, right?
@@mulliganstew72 the sellers that want a bidding war under list the property most times. That way they get 20 or thirty buyers, and they buyers know there are 20 or thirty offers being submitted so that is where the high bidding comes in. In those cases they wouldn’t put an appraisal gap in the contract, but a counter. Like they list at 300k thinking it’s worth 340k. They accept a 350k offer as the best one. When they accept they counter that if the house doesn’t appraise at 350k, they want assurances that the buyer will still pay that 350k. So they might put a 10k gap in their counter offer. When the original contract states a contingency for appraisal gap and they buyer will come out of pocket for the difference, it usually means they know the appraisal won’t value the contract price, but they want that contract price money.
@@drewcoleman738 ahh thank you for explaining. That’s what happened in my purchase situation. It listed for 300 K we offer 310 they said they had an offer for 330 we raised 332, won bid and had a plus/-10% Appraisal contingency. There was also other verbiage that made it nearly impossible to back out without losing $ but I don’t remember what it was…(My mother, God bless her helped me since I was buying sight unseen & she wasn’t perusing contract terms w/a red pen like I was Lol)
It appraised on paper, (No in person appraisal) so I’m going with that. Now I’m selling so I will keep this in mind. Thanks a lot for the explaining to me!
Hi Kyle as always really nice video , I’m a new LO here in FL , can you help me ? I want to start doing some videos for the Spanish community and I wonder what program you use to record and share the screen as you do , 😊😁
We close tomorrow on our home! The appraisal gap won us the property. There were 18 offers and we offered $40k over asking with $25k appraisal gap. It came back $20k short, we understood the risk of this but it also allowed us to have a lower monthly payment since we kept our down payment at 3%. Might not work for everyone and can be scary but we don’t plan on selling for a while and are comfortable with the payment. Thanks for all of your videos, helped us a lot throughout the process!
Congratulations!! 🏡
Can you do an Updated USDA Loan Video. A lot got passed and changed this year
Hi! Sure I will add it to my to-do list. thank you! :)
Roanoke, VA
255k house
10k appraisal clause
Offer accepted
Awesome!
Hi there! Curious how you make your videos with you off to the side next to the notes in real time?? Thank you!
10:23 The Purchase Price minus the down payment will leave the loan amount to be below the appraised value. Why does the 10K gap still need to be paid if the loan will be lower than the appraised value? 2nd question, the 10K is added to the down payment amount in the contract to cover for the gap?
Hey Kyle, I just wanna say thank you for all your video it help me out in the home buying process. Keep up the great work!!
Wonderful, I'm glad to help :)
Using the last example of a 425k purchase price/ 5k appraisal gap, if the appraisal comes in for anything at all lower than 425k, does the buyer still have an option to back out of the contract? So, if it appraises for 422,500, are they obligated to pay the 2,500 gap since it's within the 5k they agreed to pay or is there a loophole where they can still back out? Or, is the only guaranteed way to keep someone locked into a contract to have them waive the appraisal contingency, i.e. full appraisal gap?
Why would people waive appraisal ! Just look for another house . That’s why the market it’s so high ! .
It benefits the lender for us to cover the gap. Should you be unable to make mortgage payments in the future, the gap came out of your pocket and they can turn around and resale the home.
Not really. That’s why they use the lower appraisal value - not the purchase price (inclusive of the gap)
Thanks for the info! It’s tough out there for sure 🥵
For sure!
It all depends on the money you have on hand. Where I’m at appraisal waivers are standard to get your offer accepted.
They're crazy common now!
Great explanation. Is the process same for new construction?
Yes :)
Is this guy a realtor? Waving the appraisal gap is always a suckers bet.
Not a Realtor. I mention the dangers in this video.
hey Kyle is there a video of u about hemefirst program in NYc or plan to make it in future , thanks
Thanks! Is that home first? Great suggestion!! I will add it to my video ideas list :)
The mustache should stay bro
I'm a bit confused. Is the issue that the lender won't lend more than the house is appraised for, or that the lender will only lend based on a percentage of the appraisal value?
If a buyer agrees to buy a house for $100K with a $90K loan, but the appraisal is $95K, is this a problem? Because the lender would still be lending less than the appraised value of the house, so there shouldn't be any issue?
Or is it because the lender calculates loans based on percentages? For example, if the house is appraised at $95K, the lender might only offer 90% of that value (because initially, they agreed to loan 90% of $100K), which would be $85.5K. Consequently, the buyer would need a larger down payment ($14.5K instead of $10K) to reach the $100K purchase price. In that case, why can't the buyer ask the lender to increase the loan from 90% of the $95K appraised value ($85.5K) to $90K so the buyer still only has to put down $10K rather than $14.5K?
Loan risk is based on the loan-to-value ratio. Lenders have a maximum amount they will lend given the value of a property. That max amount is based on the loan-to-value percentage. To find the value, they use the lower or the appraised value or purchase price.
On Conventional loans the max LTV is 97%. So in your example, if a buyer wanted to do 10% down, but the appraisal came in short, the buyer could request the lender run the loan at a lower down payment (3%) to help. If the house appraised at $95,000, then the max loan could be $92,150 ($95k * .97). To get to $100,000 purchase price, the buyer would need a $7,850 down payment.
Now is the lender going base off the list price or the purchase price as far as the appraisal?
The purchase price on the contract
Thanks so much 😃
Help !!!
Wich loan is best for disabled people. Want to fix my 1940 paid off old house. I have no downpay right now
We're putting 20% down so gives us a lot of wiggle room to play around with the appraisal gap. Being able to tie it to your down payment is hopefully helpful 😂
Can you please share content for arm loan?
An adjustable rate mortgage is just what it sounds like. The most popular (from years past) are called x/1 arms. They started out at 1/1 and went to 10/1. Meaning the first number is how many years you are locked at the closing interest rate. Keep in mind, you have to qualify at around 3 higher that the actual rate (shock rate). Once the initial lock period ends, on the x/1 s, your interest rate varies off prime (or LIBOR or whatever the lenders use) every 12 months. There are three lender (but only one that FNMA buys from them) that offer a 5\5 (so locked for five years, than adjusts, then locked for 5 more year…). There is a lender that used to do a 15/15 arm, which is like the best one I’ve ever heard of. You have to think about how long your going to be in the home and what you think rates are going to go. Usually arms have lower closing costs, which is why they were so popular
On my list :)
I'll view later. Jeb is LIVE right now. Pop in!
Awesome!
If I don’t put an appraisal gap and the house appraises lower than what I offered, or like you said, the appraisal came in way lower than what I said I would cover, I can back out. If I back out in those cases, do I get my escrow money back?
It's going to depend on what's in your contract. But, in the majority of cases, yes you will get it back :)
Make sure contract says you can back out Without recourse if the appraisal isn’t on target. Mine had verbiage along the lines of as long as it appraises at +/- 10% of offer, the deal moves forward…Banks will sometimes just look at the market on paper and see what similar places are selling for in the area without doing an in-person appraisal, thus you don’t pay for the appraisal but you also really don’t know the true value of the place. In my view, it seems all parties want the deal to move forward as I haven’t heard of many low appraisals and feel the whole “appraisal gap” is more a bidding war tactic to drive up costs. Look closely at the contract & make sure you’re not on the hook for anything that doesn’t sit well with you. You don’t want to buy something that’s under-appraised & have to sit on it for years only to break even. Your buyers agent wants you to purchase just as much as the seller & their listing agent does, so they won’t always point out contractual nuances that make it nearly impossible for you to back out of the offer contract. It’s up to you review carefully (take out your red pen lol), ask questions & request modifications during “due diligence” process (this is the first few days the offer’s accepted). If you’re reasonable, The seller will probably want to make it work with you vs re-list & start anew.
@@mulliganstew72 thank you so much for the advice!!!
@@jessicas6640 happy to help! Excited for you and Wishing the best of luck!!
Who makes up these rules?
Fannie Mae, Freddie Mac, HUD, VA, USDA
Honestly...IF an appraiser sees the sales contract with this baked in GAP, that will give him more leverage to reduce his appraisal...Everyone knows that to be a FACT
A gap is not a valid data point on an appraisal. An appraisal doesn't start with a price and then get reduced. A price is assembled base on comparable homes.
Appraisals are garbage. They’ll make it worth whatever the mortgage is. All these people are in Kahoots… the realtor, the appraiser, LO, the inspector… they just want to keep getting paid…
Thanks for sharing your perspective.
by the end of this month sellers will be glad to sell for the appraised value😅
That would be an interesting change in the market!
Ridiculous rules 😡
How so?
You’re such a great teacher 💜💜💜 I actually get you the first time and you have such a soothing voice😂🤌🏽🫶🏽
Wow! Thanks for watching. :)