The Appraisal Gap, the Expiring Lock, and the Late Survey Fee
A purchase contract is signed February 14 for $425,000 with a May 2 closing. The buyers are first-timers putting 10% down, so the loan is $382,500, locked April 1 for 45 days at 6.250%, with a 0.250-point extension available in 15-day blocks. The appraisal arrives April 9 at $412,000; the appraiser notes the contract price exceeds the two most recent comparable sales. The buyers have $58,000 verified, but $6,000 of it is a transfer from the fiancée's account with no letter. The sellers refuse a price cut but will give an $8,000 credit toward closing costs. The lender requires borrower-paid mortgage insurance at 0.62% annually above 80% loan-to-value. Renegotiation and a re-inspection push the closing to May 27. On May 21 the title company reports a $310 survey fee that was never on the Loan Estimate.
1. Quantify the appraisal gap and evaluate the buyers' options, including the seller credit and mortgage insurance.
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Recompute loan-to-value on the appraised value, not the contract price: $382,500 / $412,000 = 92.84%. The loan is therefore above 80% LTV and mortgage insurance applies at 0.62% of the loan amount annually: $382,500 x 0.0062 = $2,371.50 per year, or about $198 per month added to the housing payment.
The $8,000 seller credit does not solve the gap. Seller concessions may be applied only to closing costs, prepaids, and points; they cannot fund the down payment or reduce the loan amount, and for a primary residence above 90% LTV the cap is 3% of the price, or $12,750, so the credit is allowable but cannot fix the ratio.
Real options: accept the 92.84% LTV and the $198 monthly mortgage insurance; pay the loan down to $329,600 (80% of $412,000), which requires $52,900 and is not feasible on their verified funds; or renegotiate the price toward $412,000 so the LTV and the insurance burden fall. Recommend accepting the insurance only after confirming the payment still fits their ratio, and disclose the added cost in writing rather than letting it appear for the first time at closing.
2. The lock expires before the new May 27 closing. How should the extension fee be handled, and what disclosure problems does it create?
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The 45-day lock from April 1 expires May 16, so the eleven-day slip past the original May 2 date requires one 15-day extension at 0.250 point, or $956.25 on $382,500. Before charging it, establish causation. If the delay came from the borrower's documents, a slow appraisal, or a seller's renegotiation, the lender may pass the fee through under the lock agreement. If the delay was the lender's or a vendor's error, charging the borrower is a fairness and UDAAP exposure and the lender should absorb it.
Disclosure mechanics: an extension fee paid to the creditor is a zero-tolerance charge, so it cannot simply surface at closing. A revised Loan Estimate is required within three business days of the changed circumstance that caused the fee, and the borrower must receive it no later than four business days before consummation. The fee then appears on the Closing Disclosure, which must be received three business days before closing; if adding the fee pushes the annual percentage rate up by more than 0.125% on a fixed loan, a revised Closing Disclosure restarts that three-day wait. On a May 27 closing, a May 21 fee change is tight - advise the processor that the closing may have to move again.
3. What must happen with the $310 survey fee and the appraisal delivery, and can the loan still close on May 27?
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The survey fee was not disclosed at all, which is the harder problem than its size. A fee the creditor should have anticipated at application cannot create its own changed circumstance; adding it looks like a good-faith violation for the aggregate of third-party, shoppable charges in the 10% cumulative bucket. If the survey was genuinely unknown until the title company raised it, the lender must issue a revised Loan Estimate within three business days of learning of it, compare the bucket total against the original disclosure, and refund any amount above the 10% ceiling at or before closing. A $310 charge alone may sit inside the 10% cushion, but only after the arithmetic is actually run and documented.
The appraisal is separate and absolute: the buyers must receive a copy of the appraisal no later than three business days before consummation, so the May 21 report must reach them immediately, not at the closing table. Also confirm the reconsideration-of-value path if the buyers believe the appraiser missed a comparable. With the revised disclosures, the corrected Closing Disclosure received by May 22, and appraisal delivery in hand, a May 27 closing remains possible - but only if the extension fee and survey are disclosed now rather than papered over.