There’s a long list of things that you’ll have to complete before you can buy a house, including having the home appraised. That’s important because your mortgage lender will need an accurate estimate of the home’s value before finalizing your loan. If the appraisal comes back too low, that can throw a serious wrench in your plans. Fortunately, it doesn’t have to be a deal-breaker and there are some things you can do to recover when the appraisal doesn’t live up to expectations.
Find out now: How much house can I afford?
1. Consider a Do-Over
Spending more money on another appraisal isn’t convenient, but the home could be appraised at a higher value the second time around. If you believe that the initial appraisal doesn’t reflect the home’s true value, you could try negotiating with your lender.
If your lender doesn’t want a second appraisal, you can always go back and appeal the outcome of the first one with the appraiser. Specifically, you can ask if they’d be willing to reevaluate the property or take a second look at the comps (the comparable homes) your lender provided. Don’t hesitate to get your agent involved if they can provide the appraiser with comparable listings that could raise your home appraisal value.
2. Ask the Seller to Lower the Sale Price
Once you’ve made an offer to the homeowner, getting them to budge can be difficult, but it’s still worth a shot. If the seller seems open to negotiating the sale price, you and your agent can work out a new agreement. For example, if the seller agreed to front some of the closing costs you could pay them in exchange for a price reduction.
Whether or not this option is realistic ultimately depends on how motivated the homeowner is to sell and how wide the gap is between your initial offer and the home’s appraisal value. A difference of a few hundred dollars may not be much cause for concern. But if there’s a thousand-dollar gap, the seller might ask to challenge the appraisal or put the house back on the market.
Related Article: Understanding the Home Appraisal Process
3. Bump up Your Down Payment
The reason the appraisal is so important is because it determines what kind of loan-to-value ratio you’ll have. Generally, lenders prefer for this ratio to be in the 80% range, unless you’re trying to get an FHA loan. A third way to work around a low appraisal is to increase the size of your down payment so that you don’t have to borrow quite as much.
For example, let’s say you’re buying a $200,000 home and you originally planned to put down 20%. The house appraises at $190,000. To keep the loan at an 80% LTV ratio, you could put up the $40,000 you’d originally planned to pay, plus an additional $10,000 to cover the difference between the home’s value and the amount of the loan offer.
Check out our down payment calculator.
The Bottom Line
A low home appraisal can be disappointing but it’s not necessarily the end of the world. If you know what your options are, you can make a decision that’ll keep your home sale from falling through.
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