A contract is $415,000 and the appraisal comes in at $392,000. The buyer has 10% down and the program lends to 90% of value. What is the maximum loan amount at 90% of the lower appraised value?
Correct Answer
A) $352,800, which is 90% of the $392,000 appraised value
A. The maximum loan under the stated limit is $352,800. Apply 90% to the stipulated $392,000 value: 0.90 × $392,000 = $352,800. At the unchanged $415,000 price, the price contribution is $62,200. Compared with the planned $41,500 down payment, this requires $20,700 more, before closing costs. Scope and exceptions: The 90% ceiling is supplied by this program, not a universal rule. A low appraisal does not automatically reduce the contract price. Eligibility and other closing costs remain separate. Source: LTV calculation: purchase money transactions — https://selling-guide.fanniemae.com/sel/b2-1.2-01/loan-value-ltv-ratios
Why This Is the Correct Answer
A. The maximum loan under the stated limit is $352,800. Apply 90% to the stipulated $392,000 value: 0.90 × $392,000 = $352,800. At the unchanged $415,000 price, the price contribution is $62,200. Compared with the planned $41,500 down payment, this requires $20,700 more, before closing costs. Scope and exceptions: The 90% ceiling is supplied by this program, not a universal rule. A low appraisal does not automatically reduce the contract price. Eligibility and other closing costs remain separate.
Why the Other Options Are Wrong
Option B: $373,500, which is 90% of the higher contract price
It applies 90% to the contract price instead.
Option C: $415,000, because the planned downpayment eliminates the appraisal issue
It finances the entire price and ignores the limit.
Option D: $392,000, which finances the full appraised value
It finances 100% of appraised value, not 90%.
Exam Tip
The appraisal gap and the additional cash over a planned down payment are not the same amount.
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