Large down payment for your home-Pay cash for house-Why I never suggest using all of your cash to buy your new homeRead this before you put a larger down payment for your home. My assignment was to determine basic information about a home that was being purchased. The home was listed in MLS and the subject was a pending sale. The bank hired me to complete a 2075 (Desktop Underwriter Property Inspection Report). This report is not an appraisal report. It is used to determine the basic information about the subject property. If you put down a large sum of money to purchase your home, the bank will not order a full appraisal since you are taking most of the risk. In this case, the borrower was putting a large sum of money down in order to keep their payments low. For this reason, no appraisal was needed for the purchase of this property. Now think about this for a minute. The borrowers thought that paying a large sum of money down on the purchase of their new home was in their best interest. This will keep their monthly payments affordable, as the mortgage will be less. The sad truthWhen identifying the basic information, I reviewed sales in the area. While I did not complete a study to determine the home value, it was clear that the “soon to be” owners were paying more for the property than the market was willing to pay. In other words, the buyer of the home will pay too much for this home. This was a significant sum of money- to the tune of $30,000. Ouch.So the borrower just purchased their new home and lost $30,000 just like that. Get your wallet out and take out $20. Now burn it. Can you imagine doing this to $30,000? The bank did not need an appraisal, because the home owner chose to pay a significant amount down. The owners thought that they were doing a good thing by paying down their mortgage for the purchase of this home. In fact, this just hurt the buyer.
How can you avoid this?The best thing you can do is to keep as much money out of the deal as possible. This way the bank will be interested in getting a full appraisal. This will protect you, because if the property that you are buying is more than market value, the deal will be renegotiated by you and the seller. While you have a chance of losing the home you wanted, I’m sure you’d find losing the home better than losing $30,000 in two hours.There are two main reasons why you don’t want to put a large sum of money down on you home. First, the bank will not hire a real estate appraiser to determine the value of the home you are going to purchase, because there is little risk for them. Second, if you want your money back at a later time, you will have to pay the bank and the real estate appraiser to refinance your home to get your money back out of the house. If the value of your home has declined, then you will never get your money back until things change. If you paid over market value, you may never get your money back until you’ve given your bank enough for them to allow you to refinance. The second best decision that you can do is to hire a real estate appraiser and tell them that the reason that you need an appraisal is to determine the value of a home. If you have lots of comparable sales in your area and the home is not too complex, ask about a Desktop appraisal. This will at least give you an idea if the real estate appraiser that was hired by the bank ignored comparable sales in the area and then you can ask more questions. So, next time you purchase a home, guard your money or make sure you’re getting a good deal. Why, because this is your hard earned money. Remember, you will be the one working your weekends, days, and evenings to pay it back. As the saying goes, cash is king. |