Posted on: 11 May 2017
One of the steps required in the home-buying process is getting the house appraised, and this is something that benefits you and is required by the lender giving you the mortgage loan. An appraisal will tell you and your lender the current value of the house you are trying to purchase. If the value of the appraisal comes in much lower than you had expected, it could affect you in three different ways.
You may decide to back out of the deal because the house isn't worth enough
One effect a low appraisal can have is with your decision to buy the house. If you are trying to buy a house for $200,000, and the appraisal comes in at $180,000, you may no longer want to purchase this house. Most real estate contracts allow buyers to back out of deals if the appraisals come in too low, and this is primarily because who would want to pay more for a house than what it is really worth?
You may need to come up with more money for the down payment
If you do not want to back out of the deal and are willing to pay the $200,000 you originally agreed to, you should understand the consequences the low appraisal may have with the loan you are trying to get. It's very common for lenders to require a 20% down payment on a house. When this is the requirement, the lender loans 80% of the home's value, and the buyer pays the other 20%.
In this situation, if the home had appraised for $200,000, your lender may have offered to loan you $160,000, and you would have had to put $40,000 down when you closed on the deal. With an appraisal of only $180,000, your lender may decide only to loan you 80% of this amount, which would be $144,000. If you went through with buying the house for $200,000, you would now have to come up with $56,000 to put down on it.
The seller might reduce the price for you
One other option you could consider is asking the seller to drop the price. This is a good option if you really want the house but do not want to pay a price that is higher than what the home is worth. The seller might agree to do this, and this would be a huge benefit for you.
Getting a house appraised before you buy it is always a good idea, even if your lender did not require this. If you have questions about appraisals or other topics related to purchasing a home, ask a real estate agent in your city.
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