Low Appraisal on Home Purchase and Solutions For Borrowers

Low Appraisal on Home Purchase and Solutions For Borrowers

Gustan Cho Associates are mortgage brokers licensed in 48 states

This guide covers low appraisal on home purchase and solutions for mortgage borrowers. We will discuss solutions to low appraisal on home purchase. Low appraisal on home purchase can be avoided if the sellers’ price out the home appropriately prior to listing the home. Low appraisals often will delay the mortgage and closing process.

Appraisers will use the most recent comparable sales within a mile of the subject property to determine the value. One of the major problems that buyers and sellers encounter during a booming housing market is multiple offers.

In cases of multiple offers, the winning bidder will purchase the home at higher than the list price. In many instances, the home will not appraise out. Homebuyers who purchase homes with low appraisal values need to come up with the cash difference between the appraised value and purchase price. Lenders will only set the appraised value as the benchmark when requiring the down payment and the loan to value of the mortgage. So the borrower needs to come up with the down payment on the home purchase based on the appraised value PLUS 100% of the purchase price less the appraised value amount.

Home Appraisal Required By Lenders When Obtaining a Mortgage

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If you apply for either a purchase home loan or a refinance mortgage loan, a home appraisal will be required. A home appraisal is what the lender will base their collateral when lending on the home purchase or appraisal: An appraisal is the value of a home.

There are several approaches that an appraisal evaluates a subject property. The most commonly used and accepted by a mortgage lender is the comparison approach appraisal method

The appraiser needs to justify the subject property by using comparable properties similar to the subject property that has been sold and recorded in the county property records office. No two homes are the same. Appraisers will use pricing adjustments when comparing the subject property to comparable sales.

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Importance of Comparable Recent Sales

Comparable properties need to be near the subject property, usually within a one-mile radius. If the comparable properties are further away than a mile radius, the appraiser can go further out but need to add or subtract adjustments

Lenders do not like it when the comparable sales are over a mile to the subject property. Positive adjustments include if the comparable property is in a worse geographical area than the subject property.

Negative adjustments to the subject property will be calculated if the comparable property is superior to the subject property. An appraisal rebuttal can be requested if the mortgage loan borrower does not agree with the appraised value the appraiser calculated.

Low Appraisal on Home Purchase Transaction

Which means low home purchase valuationIn the event that the appraisal came in below the purchase price, most sellers will renegotiate the purchase price. However, if the seller is not willing to renegotiate the purchase price and the buyer still wants the property although the appraisal came in below the purchase price, the buyer can request an appraisal rebuttal. In the event, if the appraisal rebuttal still comes in at the lower value, the buyer will qualify at the appraised value and not the purchase price. The buyer needs to come up with the difference between the purchased price and the appraised value.  The loan to value is calculated off the appraised value.

For example, If the buyer purchases a home for $110,000 but the home only appraises out at $100,000, and the lender requires a 10% down payment, the buyer needs to put down $20,000. The lender will go off the $100,000 appraised value.

Appraisal rebuttals are normally not successful unless there are comparable recent sales within a one-mile radius of the subject property. The success rate of appraisal rebuttals is very low. However, if you find a comparable sales which is similar to your property, have the documents along with a letter of explanation to submit to the Appraisal Management Company (AMC). If you have solid comparable sales close by the subject property, you will win the appraisal rebuttal. Borrowers with any questions on this blog or other mortgage topics, please contact us at Gustan Cho Associates at 800-900-8569 or text us for a faster response. Or email us at gcho@gustancho.com. The Team at Gustan Cho Associates Mortgage group is available 7 days a week, evenings, weekends, and holidays.

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