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But what happens if you haggle with the owner, agree to a price, and then then FHA appraisal comes in lower than the sales price amount? This can be a problem for borrowers when they don’t fully understand their options for an FHA mortgage.

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When the Appraisal Comes in Lower Than the Sales Price

When the Appraisal Comes in Lower Than the Sales Price
December 8, 2018 - When you get serious about one particular home you find on your search for a new house, it’s time to make an offer to the house seller and negotiate a sale price for the home.

But what happens if you haggle with the owner, agree to a price, and then then FHA appraisal comes in lower than the sales price amount?

This can be a problem for borrowers when they don’t fully understand their options for an FHA mortgage loan whether it’s an FHA condo loan, manufactured home, or suburban house with between one and four living units (all of which are eligible for FHA mortgages).

What is the borrower to do when the fair market value of the home is lower than the asking price?

Try to Renegotiate the Asking Price of the Real Estate

See if your seller is willing to negotiate the price based on the results of the appraisal. Your seller may not want to do this, and many FHA loan applicants aren’t really comfortable haggling.

But one fact may change one or both minds; FHA loan rules state that the borrower cannot be forced to enter into an agreement where the asking price is higher than the appraised value. The reason for this is simple.

FHA loan rules require the lender to set the loan amount based on either the appraised value of the home or the asking price-whichever of those two numbers is the lower amount.

Borrowers who find the appraised value of the home is lower than the asking price will either need to make up the difference in case, renegotiate with the seller, or walk away from the deal.
The difference between the asking price and the sales price can’t be rolled into the loan amount. Borrowers who choose to purchase even when the asking price and the appraised value don’t agree would be required to pay the difference at closing time.

Try Negotiating Closing Costs With the Seller

To close the gap between the appraisal and the asking price of the seller’s real estate, you can try negotiating with the seller to get seller-paid closing costs on the bargaining table.

Your seller is permitted to contribute up to six percent of the sale price of the home toward permitted closing costs. The seller is NOT allowed to help you make a down payment. But that six percent from the seller may go a long way toward making the deal more palatable in cases where the home’s price doesn’t match the fair market value.

When the Appraisal Is Higher Than the Asking Price of The House for Sale

The reverse of the above dilemma (when the appraised value is lower than the sales price) is NOT true for FHA mortgages-borrowers are prohibited from getting cash back except for refunds, so if the appraised value comes in higher than the asking price, the borrower is NOT permitted to apply for the amount named in the appraisal and take the excess in cash.

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