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      Weekly Question And Answer

       

     Question:

    Betty asked:

     "I have a question about an appraisal price versus a sale price. If we are sold a property for less than the appraised price can this cause a problem with the bank? For example, if we buy a house for $110,000 and it is appraised at $120,000. We were told that they may not like us going into the house with automatic equity. We were also told that the bank may ask us to sign something saying that we will not take out an additional loan on the property for a certain amount of time. Is any of this true, and if so what is the reason behind it?"
     

    Answer: Dear Betty:
     

    If you purchase a home that appraises higher than the sales price that is not usually a problem, because when determining the value that the loan is made on, the lender takes the LOWER of the appraised value or sales price, thus still using $110,000 as the basis for the loan itself.
    The bank actually shouldn't mind the house being worth more than you are buying it for, because it is worth more to them too (if your house ends up in foreclosure--not that it would, just looking at it from a worst case scenario).
     
    As far as them having you sign something saying you won't take out an additional loan for a certain time period, I've never heard of that. There are many approval commitment letters that indicate no secondary financing, meaning at the time of closing there can be no other mortgages being taken out. But after closing they can't really force you not to take any more equity out.
     

    It is really the second lender that is taking the risk since they will be in second position and risk not getting their loan
    paid back (again if the home is foreclosed on) because the lender holding the first mortgage gets paid off first.

 

 

       

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