After several years of diligently saving money, I’m nearly ready to purchase my first home. Because I’ve been thinking about buying a home for so long, I know exactly what I want my house to look like. I desire a place that has three bedrooms and three bathrooms. I also need a quiet space to set up my home office in. I want a massive, walk-in closet in my master bedroom. My master bathroom needs to have double vanities, a tiled, walk-in shower, and a Jacuzzi tub. On this blog, I hope you will discover how to set priorities during your new home search. Enjoy!
Have you finally found a single family home and have put in an offer? Now you will start the process of getting approved for a mortgage so that your financing is secure. However, many factors go into your mortgage approval, one of which is completely out of your control. Your home will be appraised by a third party, and there is a possibility that the appraisal comes in lower than the offer price on the home. Here is what you should know about low appraisal values.
Why Are Home's Appraised?
A home's value is based on what a buyer is willing to pay for it, and an appraisal is designed to prevent a lender from getting stuck with a home that is overvalued due to a bidding war or uninformed buyers. The appraisal tells the lender how much the home is actually worth, and they can limit your mortgage to the amount of the appraised value of the house. In that situation, the mortgage lender is not liable for any financial commitment beyond what the home is worth.
What Happens When A Home Is Appraised Low?
The biggest impact a low appraisal value will have is how much money you need to pay upfront for a home. For example, if you bought a $200,000 home and planned for a 20% down payment, you would be qualifying for a mortgage worth $160,000. However, if the home is appraised at $150,000, then you will need to come up with an additional $10,000 due to the bank not offering a mortgage beyond the appraised value.
Many home buyers do not have the extra cash to pay for a home that has been appraised low and end up walking away.
What Can Be Done About A Low Appraisal?
You have a couple options when it comes to dealing with a low appraisal. The one thing about appraisals to keep in mind is that they are subjective, so you can get a second appraisal done on the home to challenge the first appraisal. It is quite possible that the original appraisal was a mistake that needs to be corrected.
You can also renegotiate over the sales price with the seller. If your appraisal came in low and is giving you problems with your mortgage approval, the same thing will happen with other buyers. Try to make the seller realize that the home is overvalued and that they need to come down on the price.