After signing the contract with the sellers there are a few more steps remaining in the process; one of these steps is getting the home appraised. Your lender may have agreed to loan you a certain amount based on the home being appraised at a certain value. If all goes to plan you can purchase the home if it is appraised at this value. However, this does not always happen. If you receive a low home appraisal you may need to take some extra steps to ensure you will be able to get the home.
Avoid Mortgage Insurance
One way to help ensure that you can still get the home if it comes back with a low home appraisal is to put more money down as a down payment. This will help you avoid paying mortgage insurance on the home. Most lenders will only allow you to borrow up to 80% of the appraised value of a home before you have to pay mortgage insurance. This also means that if you put more down as a down payments and stay below the 80%, your monthly mortgage cost will be lower. However, this may not be something you can financially afford while still having money in the reserves after closing costs.
More Monthly Cost
When you are not able to put down more money upfront you can go over that 80% point and pay for mortgage insurance. This choice can be very costly option. In some cases it can cost you a few hundred dollars more a month when you have mortgage insurance, so make sure you do the math before making this choice.
Getting the Appraisal Changed
With some low home appraisals you may feel that the appraisal is wrong and not all the factors were considered when coming up with the appraisal amount. Since there is room for human error you can dispute the appraisal. You will need the help of your real estate agent and lender to complete this lengthy process correctly and in a timely manner so you do not lose the home. Your lender would need to bring your case to the bank which shows that the home should be valued higher. If they decide that you are right, you would be able to continue on with the buying process. If they decide that the appraisal amount was correct, you would need to decide on the other two options if you still want to buy the home.
It can be a shocking and frustrating process when you receive a low home appraisal. However, it is important to understand that this does not mean that it is over. Keep these above options in mind before giving up.