Have you finally found your dream home? You may have spent weeks or months looking for the perfect property, and you are finally ready to buy. After offers are accepted and inspections completed, you’re down to the appraisal. An appraisal lets the lender know that the home’s value is enough to cover the loan amount. What happens, though, if the amount is less than what you need to borrow? Here are three ways you can still purchase the home.
1. Work With the Sellers To Renegotiate the Price
If an appraiser calculates the home’s value at less than your offer, this is called an appraisal gap. One solution to this situation is to renegotiate the purchase price with the sellers. In a hot seller’s market, it’s not uncommon to bid over the asking price to ensure you can buy a home. However, this inflated price doesn’t always get accepted by the mortgage lender. Reneogiating the selling price is a good thing to try first because:
- It’s not a smart financial move to purchase a home that immediately results in negative equity.
- It makes it difficult to get a mortgage, even with a different lender, because they don’t want to be stuck with a debt where they can’t collect the total value if you default on your loan.
- The sellers must assume that moving to the next lower offer won’t help as other lenders will see the appraisal price. It’s smarter for the sellers to renegotiate your original offer because it’s challenging to get around the determined value. Plus, it takes more time to start the process over with a new buyer. Any additional time costs the seller money and may prevent them from moving forward on any contract for their new property.
2. Pay Cash To Cover the Difference
When your heart is set to get that home, be prepared to increase your down payment to cover the difference. Increasing the amount you pay at closing to the seller can decrease the amount of money you borrow from the bank. A lower lending amount makes it easier to borrow within the appraised amount. If you are making an offer on a home in an area with a strong seller’s market, and you expect to pay a higher amount in cash, consider adding appraisal gap coverage with your offer. This states that you are willing to pay a specific price over the appraised amount but within a limit.
3. Get Another Appraisal
Another option is to request a new appraisal. Professionals may have a lot of experience in the local market, but everyone has their own opinion. If you feel that they did the first appraisal inaccurately or the appraiser made mistakes, you can request another one. Though you have to pay for each one, a few hundred dollars won’t mean much if the value is closer to what you need for the loan.
If you are buying a home in a seller’s market, be prepared for an appraisal gap. If the house’s value is less than the mortgage you are applying for, try these options to help you get your dream home.
Krishna Murthy is the senior publisher at Finance XOD. He is not only the senior publisher but also the owner of Tricky Finance. Krishna Murthy was one of the brilliant students during his college days. He completed his education in MBA (Master of Business Administration), and he is currently managing the all workload for sharing the best banking information over the internet. The main purpose of starting Tricky Finance is to provide all the precious information related to businesses and the banks to his readers.