In the last episode of Seattle Real Estate Chat, Jim Reppond and I discuss what happens when an appraisal comes in low for a home purchase. Since appraised values are based on comps (recently closed homes), the data used to determine an appraised value is often “lagging” behind current home prices. Factor in bidding wars when prices may be escalated along with HVCC (regulations that do not allow lenders to select appraisers) and it’s not entirely uncommon to have an appraisal come in lower than the offer price.
I received this email from one of our subscribers:
”…with a VA mortgage, can you finance buyer closing costs in excess of the purchase price (e.g. not ask for seller financing contributions, but just borrow them in excess of the purchase price)”
With a VA mortgage, the buyers closing cost cannot be financed, with exception to the VA funding fee, regardless of the appraised value.
The VA loan amount is limited to the purchase price, appraised value or VA county loan limit (or VA jumbo loan amount)*, whichever is less.
*NOTE: VA does not set actual loan limits on counties. They do set a limit as to their maximum guarantee (meaning zero down financing). In the greater Seattle/King-County area, the loan limit for zero down financing is currently $500,000. Click here for a complete list of VA loan amounts per county. VA loan amounts exceeding $500,000 in the Seattle/King County area are considered VA Jumbos and will require some down payment depending on the difference between the sales price and county loan limit.
USDA loans, on the other hand, will allow for buyers closing cost to be financed IF the appraised value is higher than the sales price. The loan amount is limited to the appraised value and must be applied to bona fide closing cost.
USDA loans are also zero down programs and are only eligible in specific designated rural areas, like Snoqualmie, Carnation or Duvall, and to borrowers who meet certain household income limits.
Sellers can contribute towards closing cost for both of these mortgage programs and currently, low mortgage rates are often paired with enough rebate pricing to cover a majority of the closing cost.
Thanks for your question!