What happens if your appraisal value comes in too low?

Are you a home buyer whose appraisal value came in lower than expected? As a home buyer, there are seemingly endless steps involved in the process. One of the last hoops you need to jump through before you cross the finish line is having your future property appraised. An appraisal is an evaluation of the home’s worth, and it is something lenders require before financing a mortgage. They want to ensure the mortgage matches the true value of the home. After all is said and done, what happens if this appraisal value comes up short? Here’s what you need to know!

Why did this happen?

If your appraisal value came in too low, your initial reaction is probably one of frustration. Your offer, likely carefully thought out to attract the seller, has turned out to be beyond the property’s value and more than your lender will finance. How did this happen? 

Appraisals are based on a few factors. These include the home’s location, size, age, functionality, and how it compares to similar properties in the area. A newer and larger home will likely hold a higher value than one that is old, small, and in need of repairs. Location plays a huge role as well, since certain areas are more desirable due to nearby amenities and safety ratings. Finally, an appraisal considers how much similar properties nearby have sold for. This provides an idea of what your future property may be worth. All of these factors are combined to come up with a home’s appraised value. Unfortunately, this may not always match its listing price, or your offer.

Can you still buy the home?

Once you understand what has happened, your next thought is likely to wonder what will happen next. Can you still buy the house you have fallen in love with? The good news is that even with a lower appraisal value, you don’t automatically have to say goodbye to the sale. In many cases, your lender will still be willing to finance a mortgage. As long as nothing is wrong with the property itself, many lenders will work with borrowers who still want to complete the sale. However, your lender will only give you a mortgage worth the appraised value of the property, and not your original offer. This means you would need to find a way to cover these remaining costs yourself. Depending on how large the gap is between these two, this may or may not be an option for you.

Do you have to follow through with the purchase?

You may be asking yourself another question. Do you have to complete the purchase? The results of your appraisal may have you rethinking your decision now that your mortgage situation has changed. The answer depends on your offer itself. 

If you submitted a firm offer with no conditions attached, you are locked into the deal. Regardless of the appraised value of the property, you are committed to following through with the purchase of the home. You will need to find a way to make up the difference between what a lender is willing to finance, and the offer that has been accepted.

It’s always smart to protect yourself with your offer on a home by including a condition that it must meet a certain appraisal value. This allows you to safely walk away from the sale if it turns out you will not be able to secure the amount of financing you need! We recommend including this condition on all offers as a way to protect yourself.

Does a pre-approval have any impact?

Some buyers may be wondering whether their pre-approval can help them in this situation. Unfortunately, having a mortgage pre-approval will not help if you run into issues with your appraisal. It’s important to understand that a pre-approval is specific to the borrower, not the property. This means that although you may have been pre-approved for a certain amount, you might not be able to secure that amount if the home itself is not valued as highly. Your pre-approval only considers your financial circumstances, and doesn’t take a specific property into account. Plus, remember that your pre-approval itself isn’t a guarantee of financing! While this is a handy tool to help you understand your buying power, it will not allow you to secure a mortgage that is higher than the property’s value.

A low appraisal value can come as an unpleasant surprise. However, it doesn’t mean it’s the end of the line! Depending on your situation, you may still be able to complete the purchase of the home. If you end up walking away from the sale, though, you might feel discouraged by having to start from scratch. This is where a mortgage broker comes in! We are here to help you secure the perfect mortgage product for your needs. We will work with you to ensure that when you find the right property, the right mortgage comes with it. 

If you have any questions about your mortgage, give us a call at Centum Home Lenders! You can reach us at 506-854-6847, or get in touch with us here.