No matter how well qualified you are for a mortgage, it all comes down to the property itself. Even if you have a pre-approval with no outstanding conditions, certain appraisal issues could cause you to lose your mortgage approval.
Keep reading to learn the top appraisal issues you may face.
Not Appraising High Enough
The largest issue that many homebuyers come across is the low appraised value. You bid a certain price on the home and assume it will appraise for that much, but this isn’t always the case. Even if you bid a price lower than the asking price, there’s no guarantee the home will appraise for as much as you need.
Appraisers use a variety of data to come up with the home’s market value including the home’s condition and the recently sold homes in the area. If most of the homes in the area sold for a price lower than what you bid, the appraiser will try to justify the higher price after inspecting the home, but unless there are unique factors or something that really stands out to make the home worth more, it may be hard to justify the value.
If the home doesn’t appraise high enough, you have a few options:
- Walk away from the sale
- Negotiate a lower sales price
- Pay the difference between the sales price and the appraised value
Too Many Necessary Repairs
The appraiser must make sure the home is safe and sound to live in right away. If he or she finds serious issues with the home’s stability, it will show up in the appraisal report. If the issues are bad enough, it could affect the home’s value.
Even if it doesn’t bring the value down low enough to harm your approval, you may still lose your loan approval. FHA, VA, and USDA loans have specific guidelines the home must meet. If the appraiser finds issues that don’t pass the government rules, the lender can’t write a loan on the property until the issues are fixed.
Foundation Cracks or Unrepairable Roofing
Certain issues with a home can’t be repaired. They pose a risk to the home’s stability and safety. This is a concern for all loans, but especially government-backed loans that have specific Minimum Property Requirements that all homes must meet.
If the foundation is cracked, the appraiser may suggest the consultation of an engineer to determine the home’s stability. If the roof is unrepairable and/or has less than three years left on it, most loan programs won’t allow a loan as this puts the homeowner at risk of financial issues due to the cost of a new roof.
Either of these issues can bring the home’s value down and make it too risky for most lenders. Because a roof is expensive and foundations aren’t easily repaired, it can the reason for loan denial.
The appraiser’s job is to assess the neighborhood along with the home itself. The appraiser uses the homes in the neighborhood to come up with a market value. The appraiser also looks at the history of the neighborhood to determine if the values have been increasing, decreasing, or remaining stable. If the values decreased over the last 12 months, the lender may see this as a red flag.
Some lenders will still write the loan, while others will require a larger down payment. This reduces the risk the lender takes in investing in the home. Lenders try to avoid excessive decreasing values as it will cause you to be upside down on the loan, making it difficult to make your payments and increases the risk of foreclosure.
Appraisal issues are common and many of them can be fixed, but not all. Make sure you work with a reputable realtor that understands the area and the loan program you are using. A realtor that knows what to look for will know upon first glance if a home doesn’t have a chance of passing a specific type of appraisal. This can save you money, stress, and time when looking for the right home.