Bank Asking for More Money Down??

[Eric Telese]

Hello all.. I have a property that I am bout to go under contract on, to be a primary residence. This will be a private deal with our attorneys- no real estate broker involved. The contract will be signed soon but the deal will not be able to close for 3-4 months. Both owners died, one of which didn’t have a will, so they have to get their nephew appointed as executor before we can close.

Today, I spoke to the seller’s attorney to get the purchase price and some other info straight. He asked how I will be financing the deal, told him conventional. He asked how much of down payment. I told him 5% down conventional loan. He said that this makes him uncomfortable because the bank may ask for more money as a down payment because of the condition of the house and it being sold AS-IS. The house is in livable condition with some holes in sheetrock but nothing too major. I have never heard of the lender coming back and asking for more money as a down payment DUE TO condition of the house. I have heard of them not lending to houses in un-livable conditions but never heard of a request for higher equity stake. Is this a thing???

He said that he would want a stipulation put in saying that if the bank requests more than 5% down, I will supply it. This way they haven’t been tied up in a contract and need to find a new buyer if this occurred. I understand trying to protect themselves from losing a sale and having longer holding costs, but just didn’t think this would be something the bank would ask. This stipulation would have a stop number. So say “buyer will put in higher down payment if bank requests it, up until 20%” or something like that.

I really don't get how this would happen especially because our agreed upon price is already $20k lower than what the as is appraised value came back at. (They had it appraised at $430k) Our sale price is $410. So my LTV from the get-go after the bank sends their appraisal will be more like 10-11%.

Now that I talk about it, that makes me think... is he trying to protect them if appraisal comes in lower due to any possible market corrections? If 4 months from now, the new appraisal comes in at $390, my bank will obviously not loan me on the $410 purchase price. Is his attorney trying to ensure I have to come up with the difference if this happens?! I will be sure that my attorney goes through this thoroughly so that the language states only if the bank requests more because of high LTV financing, NOT because of the possible changes in appraisal because they needed to drag out the selling process. 

@Harrison Busbee @Matt Wood @Dan Hertler

[Chris Mason]

I didn't re-read your post 5 times to ultra mega check to ensure the following is true, but from my first reading I'd say you are 100% correct on all points. Lawyer needs to stay in his or her lane, just like sometimes LOs and Realtors need to stay in our lane and not give medical or legal advice. 

5% down conventional and 50% down conventional have the exact same property standards. It either meets the standards or it doesn't. Not once has an underwriter ever (and keep in mind the number of mortgages that cross my desk) come back to me after reviewing an appraisal with "oh hey Chris it looks like the roof is leaking, but we will approve the loan if they do 10% down instead of 5%."

However, the 50% down person doesn't blink if the appraisal comes in 3% or 6% short, since that will have zero impact on their ability to get financing, or the terms/conditions of that financing. 

I can't tell you how many times I've spoken with a lawyer (typically on probate or divorce transactions) and had a lawyer tell me that I'm "wrong" because of xyz case law or statute (in your case, the speculation isn't even backed by that, so...). My typical response is a very polite version of, hey, great, if your law library or law firm is going to fund Mr. Smith's mortgage and collect payments for the next 30 years, I'll hand their loan app over to you to handle. Otherwise...

Anywho, regarding this:

"He said that he would want a stipulation put in saying that if the bank requests more than 5% down, I will supply it."

Make the language say something like "if the bank wants more than 5% down, due to the condition of the property but not the value, buyer will provide." Meaning if the $100k property appraises for $95k (for ANY reason), this provision wouldn't require anything extra. By contrast if the $100k property appraises for $100k but the underwriter wants 10% down due to property condition, you come in with another 5% (I can't speak for all lenders and underwriters, but again I have never seen that happen, however if this will make the lawyer feel like they are looking out for their law client, great go for it let them have the feely feels with a meaningless contract provision that might as well read "if the sun-god Ra descends upon the back yard and demands you do a backflip, you will do a backflip"). Find a lawyer to help you with the specific language needed to achieve that legal meaning, it's not my field of expertise (see what I just said there? The lawyer on this transaction needs to learn to say it. :P ).