How Does a Low Appraisal Affect Your Mortgage?

Lenders use the lower of the appraised value or the sales price to calculate your down payment and loan amount. If the appraisal comes in below the purchase price, there’s a gap that needs to be addressed. Here’s how it impacts you:

Example Scenario

• You agree to buy a home for $350,000
• The appraisal comes in at $325,000
• Your lender will base the loan on $325,000, leaving a $25,000 difference

Now, you have two options:

1. Negotiate with the Seller

This is where having a great real estate agent is crucial. They can help you:

• Ask the seller to lower the purchase price to match the appraised value
• Negotiate a compromise where both parties contribute toward the difference
• Request seller concessions to offset closing costs if the seller won’t lower the price

2. Pay the Difference in Cash

If negotiation doesn’t work, you’ll need to bring extra cash to closing to cover the gap. Keep in mind:

• This extra amount does not count toward your down payment
• You still need to meet your lender’s down payment requirements based on the appraised value, not the purchase price

How to Prepare for a Low Appraisal

Being prepared for a low appraisal can help buyers make informed decisions and avoid unexpected financial strain. Whether negotiating with the seller or covering the difference in cash, understanding the options ahead of time is key to a smooth home-buying process. For guidance on navigating appraisal gaps and other mortgage questions, contact Collette Horton at Liberty Star Mortgage.

The post What to Do If Your Home Appraisal Comes in Lower Than the Purchase Price appeared first on Liberty Star Mortgage.

Assessed Value:

When it comes to determining how much your home is worth, one of the first things that may come to mind is its assessed value. This is the dollar value assigned to your property by your municipality’s tax assessors. While this value is used to calculate property taxes, it’s important to note that it may not always reflect the true market value of your home.

Appraised Value:

Another important factor in determining your home’s worth is its appraised value. This is the value assigned to your home by a professional appraiser. Appraisers take various factors into account, including the condition of your home, its amenities, square footage, and sales trends in your neighborhood. This value is often used by lending institutions when considering mortgage applications or refinancing requests.

Fair Market Value:

The fair market value of your home is the amount a buyer would be willing to pay for it. Unlike assessed or appraised values, fair market value is determined by market forces and may fluctuate based on supply and demand in your area. Knowing the fair market value of your home is crucial when pricing it for sale or negotiating refinancing terms.

Comparative Market Analysis (CMA):

A Comparative Market Analysis, or CMA, is a free report created by a real estate agent that provides valuable insights into your home’s value. It includes information on recent sales in your area, how long homes were on the market, and the difference between listing and sold prices. By comparing your home to similar properties in your neighborhood, a CMA can help you price your home accurately and competitively.

Appraisal:

If you’re applying for a mortgage, refinancing your existing mortgage, or selling your home to anyone other than an all-cash buyer, an appraisal may be required. This objective assessment of your home is conducted by a licensed appraiser and includes details such as the size, condition, amenities, and sales trends in your neighborhood.

Online Automated Valuation Model (AVM):

For a quick estimate of your home’s value, you can use online Automated Valuation Models (AVMs) offered by websites like Zillow, Realtor.com, and Homelight. These computer-generated algorithms use historic and public sales data, along with general market trends, to estimate your home’s value. While AVMs can provide a basic idea of your home’s worth, they may not always be accurate and can vary widely between platforms.

Conclusion:

Understanding your home’s value is essential for making informed decisions about your finances. Whether you’re looking to sell, refinance, or simply curious about your property’s worth, knowing how to determine its value can help you navigate the real estate market with confidence. At Liberty Star Mortgage, we’re here to provide you with the guidance and expertise you need to make the most of your homeownership journey.

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