Buying or Selling a Home/down payment

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Expert: - 2/24/2011


Question
Banks loan out 80% of a homes worth, correct? So, If a Home appraises for 200,000 but the Owner is only asking 175,000 can that 25,000 be considered the down payment? Ive read a couple places that state that its on asking price but the bank would be getting more bang for the buck if a house is selling for less that its worth.

Answer
Hello Tom - Actually the appraisal and the down payment requirement are unrelated. Actually, it is the loan guidelines that determines the buyers investment (down payment) based solely on the interests of the lender (I will use lender for a general term). The lender is usually contracted with an entity (source of funds) which desires to loan money at an agreed rate following specific guidelines desired by this entity. If all the guidelines are met then the entity will provide the funds. Guidelines are also referred to as conditions to funding which can include specific credit score, interest rate, loan term, trade lines (credit cards, loans, etc) establishing history of willingness to pay, loan-to-value amounts, etc.. The 80/20 concept you are referring to is with regard to whether mortgage insurance is required on the loan... if the loan-to-value ration was above 80% then the borrower was required to obtain mortgage insurance and paid a premium monthly and sometimes up front to be able to borrow a higher LTV than 80%, which basically means the borrower would then be allowed to invest less than 20% down payment. Again, this is in no way related to the down payment required in the specific guidelines. In answering your question you will have to make the down payment an amount equal to the requirements set forth in your loan's guidelines. There are loans available today with as little as 3-10% down payment. As your needs vary from the guidelines ie. down payment ability, qualifying ratios (Pmt as a % of income/debt) there may be additional charges such as higher origination fees, processing & underwriting fees, etc. which will add to the costs of obtaining a loan. To protect yourself you should request good-faith estimates of the anticipated costs associated with the type of loan and your need and compare the GFE's. Then you have a better chance of comparing more than one option from different lenders... or the same for different loan types or different down payment or term options. I recommend speaking with a reputable and experienced loan originator (loan officer/mortgage broker) and present your needs to them so they can provide you with a full understanding of the financial requirements of the different loans available that may suit your personal desires and needs. You do not pay them directly, rather they earn a portion of the fees and spread associated with your loan which is extremely reasonable for the advice and counseling provided.  I am not a licensed loan officer rather I am a licensed real estate agent and member of the National Association of REALTORS therefore this is not to be construed as financial advice and you should not rely upon the information in this post when searching for a loan without the help of a loan originator. The information provided is information that any experienced REALTOR should be able to provide to whet your appetite to seek a licensed loan originator. I hope this has been helpful. - Todd Menard

Buying or Selling a Home

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Todd C. Menard

Expertise

National Association of Realtors Code of Ethics and Professional Standards * Contract Questions: 05/05 Arizona Real Estate Purchase Contract, Exclusive Buyer Broker Contracts, Listing Contracts and associated contract documentation as it relates to boilerplate, covenants, contingencies, procedures and procedures. * ARMLS Arizona Regional Multiple Listing questions * Real Estate Professional Standards and Practices, Ethics, Obligations, Duties * Agency relationships in Arizona, Procurring Cause * Questions typicaly arising during the listing period * Questions typically arising during the escrow period * Questions about working with a real estate agent/REALTOR * Questions Related to New Home Builders

Experience

National Association of REALTORS Board of Director (2011) Arizona Real Estate Salesperson License (1991-1995), Arizona Real Estate Brokers License (1995-Present), Arizona Association of REALTORS Board of Directors (2008-Present), Arizona Association of REALTORS Professional Standards Committee (2008-Present), AAR Certified NAR Code of Ethics and Professional Standards Instructor, Southeast Valley Regional Association of REALTORS President-Elect (2011) Southeast Valley Regional Association of REALTORS Board of Directors (2008, 2009), Southeast Valley Regional Association of REALTORS Grievance Committee Chairperson (1998-2007), Southeast Valley Regional Association of REALTORS Bylaws Committee (2008-Present), Southeast Valley Regional Association of REALTORS Education Committee (2008), Arizona Association of REALTORS Forms Committee - Residential Purchase Contract (2005), Arizona Association of REALTORS Forms Committee - Residential Rental Agreement (2008), Arizona Association of REALTORS Forms Committee - Buyer Broker Agreement (2009), Arizona Association of REALTORS Presidents Advisory Group, Road to Professionalism (2009), Arizona Association of REALTORS GRI Curriculum Review Committee (2009), Arizona Department of Real Estate, Commissioner's Education Advisory Group Sub-Panel B (2010) Arizona Department of Real Estate, Commissioner's Statute and License Review Committee (2007)

Organizations
National Association of REALTORS, Arizona Association of REALTORS, Arizona Real Estate Educators Association (AZREEA), Arizona Regional Multiple Listing System (ARMLS), American Notary Association, Southeast Valley Regional Association of REALTORS (SEVRAR), Southeast Valley Regional Association of REALTORS Women's Council of REALTORS (2010-Present), Phoenix Association of REALTORS (1994-2000, 2005-2009), Scottsdale Association of REALTORS (1994-2000, 2005-2009), Maricopa/Glendale Association of REALTORS (1994-2000, 2005-2009),

Publications
"Real Estate in 2008"- Lifebushido Publishing (Contributory Author), SEVRAR Magazine, Internet Crusade, RealTown ListServe, Blogger.com, Active Rain

Education/Credentials
- AAR Certified Ethics and Professional Standards Instructor, Graduate REALTOR Institute (1993), Certified Negotiation Expert (CNE), Over 100 Hours of annual real estate continuing education, Annual Ethics and Professional Standards Development Workshops as required by the National Association of REALTORS, Approx. 36 hours of NAR Code of Ethics training annually, Numerous IDW, Seminars and Train the Trainer programs, Business Management Degree - 1981

Awards and Honors
2009 REALTOR of the Year Award, Southeast Valley Regional Association of REALTORS (10,000+ Members), Double Platinum Production Award ($45,000,000 Sales Volume)- Keller Williams Realty Int'l (2001), Top 15 Sales Production Keller Williams Realty International (2001), Top 5 Sales Producation Keller Williams Realty Southwest Region (2001), Top Recruiter Award - Keller Williams Realty Int'l, SW Region (2002), Who's Who in U.S. Executive (1983), Who's Who in U.S. Real Estate Professionals (2007)

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