Be prepared to make some changes. Your home is collateral for your mortgage so that means if you can not be approved for a loan without an appraisal. It’s never guaranteed an appraisal will come in at your contract price. When your appraisal comes up short your loan options will change. Let’s get into what to do once this happens.
How Your Loan Is Affected
The lenders will extend a loan depending on your contract price or the home’s appraised value. It’s important to know this because if the appraisal comes in lower than the price you agreed to then you will have two options: Increase your downpayment or increase your monthly income. What can you do next?
Increasing Your Down Payment
You extend an offer of $225,000 for a new home. Let’s say your future home is appraised for $200,000. Without paying your mortgage you can only increase your loan up to 80%, which would end up being $160,000. That means your down payment will have to be $65,000 instead of $40,000.
You and your family will have to decide that if that $25,000 is something you can afford to do. If you decide to move forward then the lender will determine if you have the resources after closing to qualify for the loan. An added bonus of paying more on the downpayment means that your monthly payments will also be lower.
Another option is to keep the same down payment amount and add mortgage insurance. If you are struggling this option may be the best choice.
Disputing Low Appraisals
If you can’t get an appraisal to the level that you’d like then you can work with your real estate agent and lender. Together you can all figure out if the appraisal included all relevant information that could affect the price. These factors can include location, age, size, and condition of the sold homes being compared to the property you’re buying and how recently the other homes have sold for.
After consulting with each other your lender and agent will determine if the dispute is worth pursuing. After agreeing they will write up a case for dispute and present it to the bank’s appraisal department. Federal appraisal regulations will make the dispute a long process so make sure your contract allows time for such a dispute. If you are approved then you can go back to your original deal structure