Appraisal Gap Insurance??
The buyer is worried about the appraisal coming in low. The listing agent is wanting to see proof of funds. You are just trying to keep the deal together. It doesn’t have to be this stressful. Your buyer has options!
Have you heard of Appraisal Gap Insurance? I hadn’t either 😉 but it’s not a new thing… just a new crafty name. The strategy is something my team has been doing for a long time but one situation at a time; not as a conversation .. and that’s my fault. I should have shared the strategy before now.
70% of the closed transactions in April were done with a conventional loan. Only 17% were cash. Everyone is thinking you have to have cash.. you don’t! You have to have options. Mortgage Insurance gives conventional loans options.
If your buyer is planning on putting 5, 10, 20% down but afraid of needing additional money if the appraisal comes in low, they have the option to leave their loan and their down payment exactly the same. So how does it work? Let’s consider one example. Your buyer is putting 10% down on a home that started out at $550,000 but landed at $625,000. The appraisal came in at $595,000. Many people think that’s the end of the story. That the buyer needs to come with $30,000 more to closing. That’s why listing agents want to see proof of funds. What they are not thinking about is the option to shift the loan to value (LTV) on the loan program to keep everything just as it is.
As a lender, the loan limit is based on a percentage of the lower of the purchase price or appraised value. In this case, I was originally basing a 90% loan on the $625,000 purchase price. Now I am structuring a 95% loan on the $595,000 appraised value… and it still works.. without putting an additional $30k down! That’s where conventional mortgage insurance (MI) comes into play. By simply allowing the monthly mortgage insurance to increase, as it does with higher loan to values. Or, I can pay it down using Split MI to get the monthly payment to a number that works for the budget. Or, I can pay the entire MI up front and have no monthly MI. This is a great option for those buyers putting 20% down as they don’t want MI. For a few thousand, they can buy out the MI and keep that $30,000 in their pocket. Plus.. did you know rates are slightly better just under 20% down? Fannie Mae and Freddie Mac loves mortgage insurance. So let’s use that better pricing and have the lender pay some or all of the MI for they buyer!
I often get the question.. what if the buyer is only putting 3% down? That is the least down on a conventional loan. Well, that is where using down payment assistance (DPA) could provide creative solutions. If their income qualifies them, I could switch the loan to a DPA program, use those funds for the down payment, then the 3% cash the buyer has to pay the appraisal gap. In this case, I am a little more limited on the amount the buyer can go over, but it is still a viable option!
So how do you talk to a listing agent about this? About how strong your buyer is and how they have options? About how this deal is NOT going to fall apart at appraisal? I’d love to talk to them for you and do, for all of our buyers. If you are working with another lender, I’m sorry 😉 but want to help still. Download the Appraisal Gap Insurance flyer we uploaded to our Agent Ignite FB Group.
10 Day Closes – No Loan Objections!!
We are closing contracts in 8-10 days! With a little pre-planning and a compliant buyer, quick closes win deals. There are three levels for loan approval.. pre-qualification, pre-approval, and Earnest Money Guaranteed (EMG) approved. Pre-qualification is when a buyer fills out a loan application sharing income and assets. We’ve pulled credit, so based on credit and what we’ve been told, s/he is qualified. Pre-approval is when we’ve reviewed bank statements, tax returns, W2s, paychecks, employment history and verified income in addition to the credit check. It’s solid… especially with The Rueth Team. Our new EMG Approved takes it to a whole new level. EMG is when we disclose the loan and submit a full file to underwriting.. conventional, FHA, VA, USDA and … Jumbo! Once the loan is fully approved, we give the borrower an EMG seal, letting them know that we will cover their earnest money which allows them to remove the loan objection from the offer.
If the buyer knows and is comfortable with the options if the appraisal comes in low, this could be even more competitive than cash with a 10 day close, no appraisal deadline, and no loan objection! You want the strongest buyer? This is how you do it! I’m working this weekend and ready to jump in and ensure your clients know their options and feel confident going all in on their offer. Together, we can make their homeownership dreams come true!
Need a Cash Buy?
We’ve got that too! With our 10 Day Close, I am not sure how much we need it.. but it comes in handy. We would buy the home for cash then sell it to your buyer for a 1.5% fee.
Did you know in March of 2016, 16% of the homes closed with cash. In March 2021, that number moved a whooping 1% to 17% of all homes closed with cash. With a strong Realtor-lending team, your clients have a 83% chance of closing with financing. Just sayin.