When you take a mortgage to buy a house, the lender
requires an appraisal -- a neutral expert's estimation of the home's
fair market value. The appraiser considers many factors including,
condition, size, location, and amenities of the property being appraised.
He will then compare your property to the prices of comparable homes
that have been sold in the area.
Lenders require this appraisal
because it would be bad business to lend more than the house is worth.
In the vast majority of cases, everything is fine: The house is appraised
at or above the sale price and the loan goes through. However, on
occasion, the appraisal comes in less than the home's selling price.
What happens next depends upon the loan amount you are seeking and
the lender's guidelines.
One factor that goes into
your mortgage rate is your "loan to
value". This number is expressed as a ratio of loan amount
over property value. If you initially believed your home to be worth
$200,000, and it only appraises for $180,000, your "loan to value"
will increase. If the LTV (loan to value) increase too much, you may
lose your loan approval, or you will need to put down a bigger down
What to do if your appraisal
comes in low?
In the case that your appraisal
comes in low, you will first want to go back to the appraiser to reevaluate.
Appraiser's are human, and can make errors. You will want to make
sure they haven't missed any recent add-ons, the new swimming pool,
etc. If everything looks correct you will need to go directly to the
Many lender's have appraisal
review boards that will audit an appraiser's work. They will review
the comparable properties that were used, adjustments that were made,
area sales history, current market conditions, etc. Be warned, that
a review board is just as likely to cut the value as they are to increase
it. Make sure you really have a case before you go this route.
As a last resort, you may
want to have a 2nd appraisal done. Or you will want to take to your
loan officer about changing your loan program. If you still need help,
contact Allie Mae for advice.