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If the house I am buying appraises for higher than what I’ve agreed to pay for it, does this unexpected equity in the home mean I can apply it towards my down payment and therefore put less of my own money down?

If you’re in the middle of mortgage loan processing and you find out the home you’re buying appraises for more than the amount you agreed to purchase it, one would only think you could use that “unanticipated equity” to not only lower the amount you need to borrow, but also reduce the amount of your own money you need for a down payment? This is a false assumption.

While it’s always great for the property appraisal to come back higher than the amount you agreed to buy it for, this is no way affects the loan amount you need to qualify for, or the down payment you need to close on the mortgage loan. Both conventional and unconventional mortgage products offer similar requirements. See below:

  • Fannie Mae (Conventional): No. At the time of purchase the value is based on the lesser of the appraised value or purchase price. Therefore, if the house appraises higher you still must based your down payment on the actual purchase price.
  • Freddie Mac (Conventional): No. At the time of purchase the value is based on the lesser of the appraised value or purchase price. Therefore, if the house appraises higher you still must base your down payment on the actual purchase price.
  • FHA: At the time of purchase the value is based on the lesser of the appraised value or purchase price. Therefore, if the house appraises higher you still must base your down payment on the actual purchase price.
  • USDA: No. At the time of purchase the value is based on the lesser of the appraised value or purchase price. Therefore, if the house appraises higher you still must base your down payment on the actual purchase price.
  • VA: At the time of purchase the value is based on the lesser of the appraised value or purchase price. Therefore, if the house appraises higher you still must base your down payment on the actual purchase price.

 

If you’re in a situation where the home you’re buying appraises for more than you agreed to buy it for, sit tight and be patient. It’s in your best interest to wait a few months and the talk to an experience mortgage broker to discuss your refinancing options.

To learn more about how to refinance your mortgage loan in order to secure a better rate, and potentially lower monthly mortgage payment, read this: Refinance Your Mortgage with a Better Rate.

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