April 4th, 2011, posted by Brandon
This March has seen a dramatic increase in buyer traffic in many areas of the country which has resulted in multiple bids on the best deals, giving some power back to the sellers who are asking buyers waive appraisal contingencies. As a buyer, does this make sense? It depends… Are you planning to put a lot of cash down? The bank will give you a loan based on the contract price or appraised value – whichever is lower. If you’re putting more than 20% down, the appraised value is less important because you probably have the cash to accommodate. If however, you’re buying with an FHA loan putting 3.5% down, you have no room for error and a contingency would be very important. Here are my two simple rules for waiving an appraisal contingency.
1. Putting more than 25% down – YES, waiving should be fine as long as you are comfortable with the value.
2. Less than 20% down – NO, it can change the terms of the loan dramatically causing you to lose the house.
As always, consult with your Realtor to determine what the best approach is for your situation.