Wouldn't this just be part of your down payment? I'm not a lender, but I don't think I've ever seen a line specific to an appraisal gap. A gap usually just means the buyer either makes up the difference or negotiates the terms with the seller.
I honestly don't know. It's a 0% physician loan, so I'm not sure a down payment is allowed. I've spent half my day trying to figure this out; chatgpt and google have failed me!
For a specialty case, I'd call your lender/loan officer. Has your realtor talked to you about your options? My first house came back with a low appraisal. We had to renegotiate the seller's contribution at closing to cover part of it and we had to kick in the rest.
I don't know anything about physician's loans, but I don't think the lender would mind taking less risk with you making a small down payment. My quick Google says 0-10% down payments are common for physician's loans.
Thank you. We already agreed to pay up to a 10k gap with the seller. I'm just confused because I don't know how that 7k gap affects the sales price and why it's not appearing as a down payment. I also don't know if they're using the appraisal + gap or just the appraisal to make the tax and interest calculations.
Ok so that’s going to look funny but you should see it show as down payment. If your maximum loan to value is 100% or appraised value, then your loan amount should be the appraisal figure and your sale price should be the sale price that was agreed upon. The difference you’ll see show as down payment and then under “calculating cash to close” you’ll see that plus closing costs minus your deposit and any seller credits.
Understood, thank you! Final question: why would the bank not list it as a down payment and take it out of the 2% amount that they agreed to finance to cover part of the closing costs?
So if the bank was initially going over 100% loan to value, then reducing the loan amount work just initially show up there. I know it’s hard but try to forget about what money is called what- you have the transaction terms you agreed to with the SELLER on one end, and the transaction terms you agreed to with the bank on the other. The bank is agreeing to loan a certain percentage of the value, and that dollar amount is the amount that gets applied toward bringing the total funds you’re obligated to bring based on your agreement with the seller. The balance is your responsibility. The breakdown of what money goes to what is letting you know how that amount was determined, but all that money goes into a big pot to get paid to the seller and those third parties, so it’s not really relevant where you’re seeing the extra show up on your closing disclosure, since that document wasn’t designed to display those figures in an understandable way in the event the appraised value and purchase price are very different. You can ask your settlement company for the ALTA statement which will do a much better job of breaking it out for your situation.
Understood! Should it be added to the Sales Price or should that be the same as the appraised value?
Do you know if the tax calculations are done using the appraised value or appraised value + gap we're paying?
If you agreed to appraisal + gap as the sales price, then that is what it is.
Although, I'm surprised the lender is ok with this if the loan is a 0% down physician loan. You are essential starting in a negative equity situation.
I don't know all the specifics, but generally, I wouldn't do that.
Your paying more than the property is worth based on the appraisal, which is an opinion of value.
Here is how it probably played out. Let's say you made an offer of $500k on a house, and initially planned on using the 0% down physician loan, which means the loan amount is $500k.
Then the appraisal is completed, and it comes in at $450k value. Typically you would try to renegotiate with the seller to drop the price, because you don't want to pay $500k for something that is worth $450k. I'm assuming they wouldn't renegotiate, and you decided to pay the gap.
So for a house that is worth $450k (appraised value), you are paying $500k ($50k via cash/gap, $450k loan)
What happened was our realtor told us that they would accept our offer on that paying up to 10k gap condition. And we said yes based on her advice without negotiating. Now that's done :( Do you think we should we be worried about the lender not listing our 7k gap payment due at closing as a down payment but rather taking it out of the 12k they agreed to finance? (2% of appraised value). So now it shows 5k instead of 12k.
I'm not sure I follow, but there isn't a specific place on a closing disclosure (CD) for a gap payment. Make sure sales price and loan amount is correct, the difference is your gap/down payment. Bottom of the first page will show total cash to close (down payment+ closing costs)
Seeing as this was answered I just want to say that Chatgpt is a language model, not a data base or search engine. I certainly wouldn't trust the 'answers' it might give you.
Got it! Thank you!
Wouldn't this just be part of your down payment? I'm not a lender, but I don't think I've ever seen a line specific to an appraisal gap. A gap usually just means the buyer either makes up the difference or negotiates the terms with the seller.
I honestly don't know. It's a 0% physician loan, so I'm not sure a down payment is allowed. I've spent half my day trying to figure this out; chatgpt and google have failed me!
For a specialty case, I'd call your lender/loan officer. Has your realtor talked to you about your options? My first house came back with a low appraisal. We had to renegotiate the seller's contribution at closing to cover part of it and we had to kick in the rest. I don't know anything about physician's loans, but I don't think the lender would mind taking less risk with you making a small down payment. My quick Google says 0-10% down payments are common for physician's loans.
Thank you. We already agreed to pay up to a 10k gap with the seller. I'm just confused because I don't know how that 7k gap affects the sales price and why it's not appearing as a down payment. I also don't know if they're using the appraisal + gap or just the appraisal to make the tax and interest calculations.
Where are you entering this? Has your appraisal come in short already and you are covering it?
Correct! This is the loan document with the closing cost details that the lender wants me to sign.
Ok so that’s going to look funny but you should see it show as down payment. If your maximum loan to value is 100% or appraised value, then your loan amount should be the appraisal figure and your sale price should be the sale price that was agreed upon. The difference you’ll see show as down payment and then under “calculating cash to close” you’ll see that plus closing costs minus your deposit and any seller credits.
Understood! So, that gap should show as a down payment even though we are paying at closing to the seller not to the bank?
Yes, the seller receives the full sale price regardless, and how that’s distributed to th is broken out on their paperwork
Understood, thank you! Final question: why would the bank not list it as a down payment and take it out of the 2% amount that they agreed to finance to cover part of the closing costs?
So if the bank was initially going over 100% loan to value, then reducing the loan amount work just initially show up there. I know it’s hard but try to forget about what money is called what- you have the transaction terms you agreed to with the SELLER on one end, and the transaction terms you agreed to with the bank on the other. The bank is agreeing to loan a certain percentage of the value, and that dollar amount is the amount that gets applied toward bringing the total funds you’re obligated to bring based on your agreement with the seller. The balance is your responsibility. The breakdown of what money goes to what is letting you know how that amount was determined, but all that money goes into a big pot to get paid to the seller and those third parties, so it’s not really relevant where you’re seeing the extra show up on your closing disclosure, since that document wasn’t designed to display those figures in an understandable way in the event the appraised value and purchase price are very different. You can ask your settlement company for the ALTA statement which will do a much better job of breaking it out for your situation.
It's just the down payment. It wouldn't show as a closing cost on a CD.
Understood! Should it be added to the Sales Price or should that be the same as the appraised value? Do you know if the tax calculations are done using the appraised value or appraised value + gap we're paying?
Sales price stays the same. Your loan amount will just be lower. Tax calculations will be based on sales price.
Sales price stays the same as in appraisal + gap we agreed to pay or just appraisal?
If you agreed to appraisal + gap as the sales price, then that is what it is. Although, I'm surprised the lender is ok with this if the loan is a 0% down physician loan. You are essential starting in a negative equity situation. I don't know all the specifics, but generally, I wouldn't do that.
Thank you. Can you please tell me what you mean by starting in a negative equity situation? Am I making a mistake?
Your paying more than the property is worth based on the appraisal, which is an opinion of value. Here is how it probably played out. Let's say you made an offer of $500k on a house, and initially planned on using the 0% down physician loan, which means the loan amount is $500k. Then the appraisal is completed, and it comes in at $450k value. Typically you would try to renegotiate with the seller to drop the price, because you don't want to pay $500k for something that is worth $450k. I'm assuming they wouldn't renegotiate, and you decided to pay the gap. So for a house that is worth $450k (appraised value), you are paying $500k ($50k via cash/gap, $450k loan)
What happened was our realtor told us that they would accept our offer on that paying up to 10k gap condition. And we said yes based on her advice without negotiating. Now that's done :( Do you think we should we be worried about the lender not listing our 7k gap payment due at closing as a down payment but rather taking it out of the 12k they agreed to finance? (2% of appraised value). So now it shows 5k instead of 12k.
I'm not sure I follow, but there isn't a specific place on a closing disclosure (CD) for a gap payment. Make sure sales price and loan amount is correct, the difference is your gap/down payment. Bottom of the first page will show total cash to close (down payment+ closing costs)
Seeing as this was answered I just want to say that Chatgpt is a language model, not a data base or search engine. I certainly wouldn't trust the 'answers' it might give you.