Origination ActivitiesQuestion 233 of 400
A property appraisal comes in $15,000 below the agreed purchase price on a home the buyer is financing at 95% LTV. If nothing else changes, what is the most likely consequence?
a.The lender must automatically raise the loan amount to cover the gap
b.The appraisal has no effect because loans are based only on price
c.The lender bases the loan on the lower appraised value, so the buyer must bring more cash or renegotiate
d.The purchase contract is automatically voided by federal law
Explanation
Lenders base the loan-to-value ratio on the lower of the purchase price or appraised value. A low appraisal reduces the maximum loan, so the buyer typically must bring additional cash, renegotiate the price, or dispute the appraisal. Federal law does not automatically void the contract.
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