How To Use Appraisal Guarantee To Win Your Dream House In PA - YouTube

What's up everybody it's Rob  Lawrence, Vanguard Realty Alliance  

based out of West Chester PA. Today i'm  going to talk about how to guarantee  

appraisal without it costing  you more cash at closing.  

This is a cool strategy you can use because a lot  of sellers want a guaranteed appraisal right now  

with rising prices. I'll talk a little bit about  what appraisal is why people want it guaranteed  

and then how to structure your deal so that you  win the bid because you've guaranteed appraisal  

and it hasn't really cost you very much or created  much risk for you. All right let's get into it!

All right, let's talk about what appraisal is  and why it exists. So there's a bank loaning  

you money and they don't want to loan you half  a million dollars on something worth a hundred  

thousand dollars. So if you got a house and you  want to buy it for a hundred thousand dollars  

the bank doesn't want to loan you whatever amount  of money you're borrowing unless this house is  

actually worth a hundred thousand dollars. They  send an appraiser, an appraiser goes and looks at  

it. Appraisers looking at what comparable stuff in  the neighborhood is sold for before so same square  

footage, same number of bedrooms, same lot size as  close as they can get within the past six months.  

They're going to look at that and say "Hey we've  got all these house sales at $80,000 we're only  

going to appraise at $80,000", which in a normal  market it's not that big a deal, but in today's  

market with prices rising so fast a lot of stuff  is missing appraisal. So sellers want a guarantee  

from the buyer that "Hey if this appraises at  $80,000 ,I want you to cover the gap for me,  

I want you to give me an appraisal guarantee. All  right so that means you have to come up in cash  

with an appraisal guarantee. So let me explain how  you can guarantee appraisal without having to come  

up with more cash and minimizing your risk.  Now again you're not sure that the appraiser  

is going to miss, but it's a risk to both sides  and if it does miss then there's a negotiation  

that needs to take place and the seller  doesn't really want to have that negotiation.  

All right so let's use our example of a hundred  thousand here. So say you're buying for a hundred

and your down payment is  going to be 20 down or 20k

now you're in a competitive situation so  you want to guarantee appraisal. Let's say  

we want to do a $10,000 appraisal guarantee.  So under this scenario we're going to borrow  

eighty thousand dollars from the bank.

All right so we're gonna  borrow eighty thousand. Now  

let's say that the appraisal comes in at ninety  thousand so our appraisal guarantee kicks in.  

So now the bank says "Hey wait a  minute, i'm only going to loan you  

on this property if it's worth ninety  thousand", so it comes in at ninety thousand.  

So, instead of you know having to come up now with  20, plus 10 to get to 30, and then borrow 70 from  

the bank, you restructure the loan so that you're  going to do a 10% down payment instead of a 20%  

down payment. So now we're going to put  $10,000 down, all right so we got 10,000 down

and then $10,000 appraised.  So that's going to be $20,000

and we're still going to borrow  $80,000. So it's really the same thing  

if you think about it. The only difference  is you may have some mortgage insurance  

if this clause kicks in which is  going to increase your payment  

slightly. Now it depends on your credit and how  much you're putting down. Now the only time this  

doesn't work is if you're doing the minimum down  payment. So if you're going 5% conventional or  

3.5% FHA loan then this is not going to work,  but and again you can also double check with  

your mortgage broker but this is the best way to  structure it so that you're guaranteeing appraisal  

but you're not having to come up with more  cash to close. It's the exact same as it was  

as you're doing 20% down except now you're doing  a 10% down loan with a 10k appraisal guarantee.

All right everybody, I hope that makes sense. I  hope that helps you win the deal that you want  

in the house of your dreams. If you have any  questions let me know. If you're looking for  

a great realtor in your area I know people that  understand this concept and can get you in the  

house that you want to be in. All right please  feel free to reach out if you have any questions!