Low Appraisal, Seller Credit, and the Closing Timeline
The Riveras are preapproved for a 90% LTV conventional loan, 30-year fixed. They are under contract at $300,000 with a $6,000 seller credit toward closing costs. Their lender’s estimated closing costs and prepaids total $9,000. They have $35,000 in cash, which must cover down payment, closing costs, and a $2,500 emergency reserve. The appraisal comes in at $285,000. The lender bases LTV on the lesser of the contract price or appraised value. The Closing Disclosure was delivered today; closing is scheduled in 5 days. The seller has offered to reduce the price to $290,000 but will not increase the credit.
1. Calculate the cash the Riveras need at $300,000 and determine whether they can close.
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The lender will use the lower value, $285,000, to calculate the loan:
- Maximum loan = 90% × $285,000 = $256,500.
- Because the contract price is $300,000, the buyer’s effective down payment is $300,000 − $256,500 = $43,500.
- Net closing costs = $9,000 − $6,000 seller credit = $3,000.
- Total cash needed to close = $43,500 + $3,000 = $46,500.
- Add the required $2,500 reserve = $49,000 total cash needed.
The Riveras have $35,000. They are short $14,000 against the cash-plus-reserve requirement, or $11,500 against closing cash alone. They cannot close at $300,000 on these terms without more cash or a price/credit change.
2. What maximum contract price would let them close with their cash and reserve, assuming the appraisal stays at $285,000 and loan terms and credit hold?
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Available cash for closing is $35,000 − $2,500 reserve = $32,500. If the price remains at or above $285,000, the loan stays fixed at $256,500. Cash needed is:
Price − $256,500 + ($9,000 − $6,000) = Price − $253,500.
Set Price − $253,500 ≤ $32,500:
Price ≤ $286,000.
At $286,000, cash to close is $286,000 − $256,500 + $3,000 = $32,500, leaving the $2,500 reserve. The seller’s $290,000 offer still leaves the buyers about $4,000 short. They would need a lower price, more seller credit, a larger down payment, or additional cash.
3. What Closing Disclosure timing and renegotiation issues arise if they amend the price?
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The buyers must receive the Closing Disclosure at least 3 business days before consummation. A price change is a changed circumstance, so the lender will likely issue a revised Closing Disclosure; the buyers may need a new 3-business-day review period. Closing in 5 days is tight if the revision is issued late.
The parties should also confirm that the $6,000 seller credit remains within the lender’s concession limit and does not exceed actual closing costs. If the price is reduced to $286,000, the credit is about 2.1% of price, which is generally within conventional limits, but the lender must confirm. The buyers should also consider requesting a reconsideration of value if they believe the appraisal missed comparable sales, but they should not rely on that to solve the cash gap.