Mortgage Qualification Problems - Low Appraisals

The real estate market in the United States is undeniably hot. This brisk pace has led to an unusual mortgage qualification issue: low appraisals. Here are your options if you receive a low appraisal amount.

Appraisals

An appraisal is an assessment by a qualified individual to determine a property's value. This process involves reviewing the property and comparing it to others in the area. Mortgage lenders require appraisals, so you must address any appraisal issues to secure your home loan.

Suppose you have excellent credit, a substantial income, and are prepared to make a significant down payment. Both you and the lender are satisfied, and the final step is obtaining the appraisal. Unfortunately, the appraisal comes in significantly below the agreed purchase price. What should you do next?

Steps to Take When Facing a Low Appraisal

1. Stay Calm and Revaluate:

   • Buying a home is an emotional journey. Take a step back and objectively assess whether you are overpaying for the property. If you decide to proceed, present the low appraisal to the seller and attempt to negotiate a lower price. Be prepared to walk away if a solution cannot be reached.

2. Consider Market Trends:

   • The fair market values in the neighbourhood may be declining. As the real estate market cools, your neighbourhood might be experiencing a more significant drop. In this case, thank the appraiser for preventing a potentially poor investment.

3. Evaluate the Appraisal Accuracy:

   • Appraisers can make mistakes. They may not be familiar with the neighbourhood or have other reasons for an inaccurate appraisal. If you suspect an error, ensure the appraiser compared the property to similar homes in the area. If necessary, commission a separate appraisal for comparison.

Conclusion

A low appraisal should be viewed as a potential red flag. At the very least, it warrants a closer examination to ensure you are not making a bad deal.