House prices in 2019 seem to be “at risk” to go lower according to some industry reports. If you are researching home prices (especially for those in housing markets on the West Coast) you may read about these issues being higher than usual for a variety of reasons.
How Do Declining Home prices Affect FHA Home Loans?
If the value or asking price of a neighborhood is in decline, it may affect certain options you have to negotiate with the seller.
Your seller may or may not be willing to negotiate on items like the allowable six-percent-of-the-sale-price contributions toward closing costs the seller can make. Sellers may agree to pay this six percent as an incentive for the borrower to purchase the real estate.
But if prices are going down in a given housing market and the seller’s profit margin begins to shrink as a result, he or she may think twice about that six percent.
Cash Back On FHA Home Loans?
Some borrowers want to know if the sale price declines and is lower than the appraised value, can they apply up to the FHA home loan limit and take the rest of the mortgage loan funds in cash. This can never happen.
FHA home loan rules are designed to prevent exactly such a scenario-the only FHA mortgage you can apply for to get cash back for any purpose the borrower chooses is with an FHA cash-out refinance loan.
Appraisals Versus Sale Price
Sales prices may not be the only things dropping in certain housing markets; if there is a decline in property values overall due to a “market correction”, natural disasters, or any number of other factors, it is entirely possible that appraisal values will begin to reflect this when the borrower comes to the bargaining table.
If the appraised value of a home comes in lower than the asking price, the buyer and seller can renegotiate the sale price, the borrower can feely walk away from the loan without penalty, or the buyer can agree to pay the difference out of pocket.
But the difference between the appraised value and the asking price cannot be financed into the mortgage loan amount.
Talk to a participating lender to learn more about issues like these that can affect your home loan transaction.