Expert: Diann Tonnesen - 8/13/2008

Question
Hello,

My wife and I own a townhome and are considering moving to a bigger townhome (we like low-maintenance homes!).  The particular home we're interested in has an additional 1000 sq ft. and several luxury upgrades we don't have.

The development that the townhome is in is actually still being built (the whole development is less than 5 years old).  The asking price on the townhome is $190K, and the developer is literally selling the exact same model (new) for asking price of $287K (there are about $15K of incentives).  So, this to me seems like a great deal (I am guessing this might be a foreclosure or quick sale?).

Because the asking price is far under appraised value or value of homes around it, would it be easier to get a no money/low money down loan?  I have a good income and excellent credit, but have little cash to put down.  Even if the appraisal was at $240K, an 80% loan is all we'd need to cover the asking price.

Also, we're debating selling or renting our home.  We'd probably lose about $20K selling our current townhome (which might force us into renting it).  Would it be possible to get an "over-asking price" loan on the new townhome (but still well under appraisal value) to cover the loss of selling our current townhome?

Thank you for your help and advice!

Answer
Hi John,

Sounds like you might be getting a great deal on the town home! But if it is a short sale or foreclosure you may have quite a few hoops to jump through to get your contract approved by a bank. Is this property listed? Do you have an experienced real estate agent that can help you? If you don't I would strongly suggest you find one who knows how short sales and foreclosures work, as they can be extremely complex and you don't want to buy it unless all the existing liens have been paid in full. Often they are not paid off and the new buyer is responsible for paying them.

As far as the down payment is concerned, banks will only loan on the lesser of the appraised value or the sales price. They will not give you a loan based on the appraised value if it is higher than the sales price. So that also means they will not loan on more than the sales price of the contract. (Though I will give you an A+ for trying to think creatively!!)

However, here are some buyer programs that are still 3% down through FHA, or they may have the FHA Nehemiah program available in your area. With the FHA 3% down program you would need to come up with approximately $5700 for a down payment and the seller is allowed to pay up to 3% of the purchase price for your share of the closing costs. On the Nehemiah program the seller is allowed to contribute a total of 6%, 3% for the down payment and 3% for your closing costs.

However there is currently legislation pending to repeal the Nehemiah program. Officially it is scheduled to end at the beginning of October, though all properties that are in escrow before then will be honored under the program. So if this is a possibility for you, you will need to get the property under contract as soon as possible and be pre approved by your lender before then. You will also need to check with a local lender from your area to see what the maximum FHA loan limits are for that area. They do vary considerably based on the average sales prices for the location.

Another possible hurdle will be if the town home you currently own already has an FHA loan on it. If it does, you would not be eligible for a second FHA loan. However, if you sold your town home and an existing FHA loan was paid off, then you would be able to get an FHA loan on the new property.

If FHA is not a possibility for you, there may be some local credit unions you could join that are still offering low or no down specialized loans. You should definitely check with a local loan officers to see what other programs may be offered in your area.

I am sure you may have more questions regarding your situation after reading all this, so please feel free to email me again! And if you need a referral to a top real estate agent in your area who specializes in foreclosure/short sale properties, let me know and I will be happy to refer you to one!

Good luck, John! Hope you get an amazing steal on your new town home!!