My Home Didn’t Appraise For Its Purchase Price. What Are My Options?

When you are in the process of buying, selling or refinancing your home, obtaining a home appraisal is usually a required step.  When an appraiser comes to your home, he or she will determine its “fair market value” by considering a variety of factors, such as the number of bedrooms and bathrooms, the age of the home, and the home’s square footage.  Other factors are also taken into consideration when conducting an appraisal, such as the value of similar real estate in the area and any negative characteristics that might cause the home’s value to decrease (such as termite damage or a crumbling foundation).

Your mortgage lender will use the appraisal to determine if the price you are paying is a good price.  Therefore, the results of the appraisal will affect your mortgage eligibility, especially if you are applying to refinance using a method other than the streamlined refinance offers that are available.  Your lender will also use the appraisal as the “value” factor in the calculations of your loan-to-value (LTV) ratio.  If you appraisal is lower than the purchase price, it will be the number in the “value” spot; if the purchase price is lower, it will be the number in the “value” spot.  This particular number is significant because it will determine your down payment amount.

Therefore, if your home appraises for less than the purchase price or refinance amount, you have three options:

1. If you are buying a home, you can renegotiate with the seller for a lower sale price.
2. You can increase your down payment amount to meet the loan-to-value requirements.
3. You can cancel the home purchase contract (most contracts are written with an appraisal contingency for this exact purpose.)