How Covid Made Getting a Mortgage Harder than Ever, and How to Strengthen Your Offer Despite it

Real Estate Investing in New York by Christina Kremidas

Welcome to Episode 14 in my Series REAL ESTATE INVESTING IN NEW YORK!!
YOU CAN ALSO VIEW THIS EPISODE ON YOUTUBE:
https://www.youtube.com/watch?v=0Tc60UJ0spg&t=3s
In this Episode, I’m explaining how Appraisals have become an issue in this new ‘Covid environment”. Scroll down for the notes!
Don’t miss Episode 15, which will be a bit more personal (by popular demand!). I’ll be talking about how I transitioned careers into real estate, how I started my career and tips for anyone who may be interested in getting into the industry.
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Notes on this Episode:
The Appraisal is only done when you are getting a mortgage to purchase the property.
It is the Bank’s way of confirming that the price you are paying for the property is not more than the market value.
The Bank sends an Appraiser to the property to check the overall condition, size, features and amenities, and compares their findings against recent comparable sales to come up with a property value.
If you are getting a mortgage, there is an amount of money that you plan to put down in cash, and the remainder of the price of the property is covered under financing
For example, if you are buying a property worth $1M, and you plan to put down 20% and finance the remaining 80%, then you will be putting down $200,000 of your own money in cash, and the bank will be going you $800,000. This also means that the Loan to Value Ratio from the bank is 80%.
However, the Bank will only lend you that 80% of the APPRAISED value of the property, NOT the price that you were willing to pay for it
So what happens when the bank is not willing to give you the full amount that you need?
Ultimately, if you want the property, you need to figure out how to come up with the balance owed. Technically, if your contract has a mortgage contingency, since the bank is unable to lend you the full amount you are allowed to walk away from the deal and get your contract deposit back.
You can try to re-negotiate the purchase price with the seller and see if they will accept less, and keep the deal moving.
If the seller refuses, and you do not have the cash to come up with the balance, you need to see if the bank can lend more funds than they previously agreed to.
How has Covid made this even more complicated?
In certain areas, Covid has property values all over the place
Some people wanted to sell hastily, and were willing to take a loss on their apartment, throwing off the rest of the comparables in the building and in the neighborhood.
Banks also became more conservative with their appraisals simply because they are hesitant to take on any extra risk during this time.
When does a low appraisal NOT put financing in jeopardy?
When a buyer is able to put down more than 20% in cash, they are much more appealing to a Seller because a low appraisal is much less of a threat to the deal.
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