HOW TO ADDRESS THE PROBLEM OF A LOW APPRAISAL
It happens. You have worked hard to gather all your paperwork, tax returns, pay stubs, employment history, blood type, etc. The pre-approval came back with more money than you knew you wanted to spend and you stayed within your budget in looking for your new home. Everything was going well, then you got the call from the mortgage rep. The appraisal came in low and they cannot write the loan you were counting on to purchase the property.
What do you do? Do you start all over again? Not yet. There are a few things you should try before giving up on your dream house.
ASK THE LENDER TO RECONSIDER THE VALUE
You are entitled to a copy of the appraisal. Look at the houses the appraiser used to set the value. Can you and your agent find better comparable sales in the market? Are there other errors or things missing in the report? Gather good information and ask the lender to reconsider the value by ordering another appraisal or correcting any mistakes in this report.
RENEGOTIATE THE DEAL
Get a copy of the appraisal from the lender and share this through your agent. You were willing to pay the offered price when you thought you could get financing. Now that you (or any other person) cannot get the contract price financed for this property the sellers may reasonably reconsider and accept a lower offer based on the appraisal. In slower markets this strategy is much more successful.
GET ANOTHER LENDER
Start over with another lender. It is a long process but you have the documents they will need ready at hand. A different lender and appraiser might render a better decision. You can’t keep switching because it will hurt your credit but moving from one lender to another may get you a more favorable lender and appraisal.
PAY THE DIFFERENCE
If you believe in the value of the house, want it bad enough and have the means to do so. Pay the difference by bringing more money to the table and showing the lender that you have real skin in the game.
FIND ANOTHER HOUSE
It might be that the house you wanted and put an offer in on is just not worth as much as you thought it was worth. Your contract should have a clause that you can walk away and get your deposit returned if you made a good faith effort to get a mortgage and could not. Maybe the low appraisal is a sign of something and it is time to move on. Remember, the appraiser has no vested interest in protecting you or the seller, just in delivering what they believe is market price. They can be wrong but are unemotionally right more often than they are wrong.
If you are struggling with finding the right house for you or have questions about the process, come in and see us. A one hour consultation will help you focus on your goals, get your questions answered, pick up some important tips and short cuts and save a lot of time, money and aggravation in the long run.