An appraisal comes in $5,000 below the contract price on a purchase transaction with 20% down payment. The borrower wants to proceed without renegotiating the contract price. What is the impact on loan processing?
Correct Answer
C) The loan-to-value ratio must be recalculated based on the lower appraised value
The loan-to-value ratio must be calculated using the lower of the contract price or appraised value. If the appraisal is lower, the LTV increases, which may require the borrower to bring additional down payment funds to maintain the required LTV ratio or accept a higher interest rate if available.
Why This Is the Correct Answer
The loan-to-value ratio must be calculated using the lower of the contract price or appraised value. If the appraisal is lower, the LTV increases, which may require the borrower to bring additional down payment funds to maintain the required LTV ratio or accept a higher interest rate if available.
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