{"id":10066,"date":"2022-07-28T14:36:05","date_gmt":"2022-07-28T21:36:05","guid":{"rendered":"https:\/\/www.flyhomes.com\/blog\/?p=10066"},"modified":"2022-08-19T12:05:43","modified_gmt":"2022-08-19T19:05:43","slug":"what-happens-with-an-appraisal-gap","status":"publish","type":"post","link":"https:\/\/flyhomes.com\/blog\/what-happens-with-an-appraisal-gap\/","title":{"rendered":"What is a home appraisal gap?"},"content":{"rendered":"\n

Everything buyers need to know when a home is appraised for less than your offer<\/h2>\n\n\n\n

An appraisal gap is the difference between the amount you offered on the home and its appraised value. Because a lender will typically only lend up to a percentage of the appraised value, the buyer must cover the appraisal gap with alternative funds or through additional negotiation. <\/p>\n\n\n\n

In this article, we’ll discuss how an appraisal gap works and what you can do about it. <\/strong><\/p>\n\n\n\n

Our Flyhomes Agents have the local expertise to help make sure you’ll be able to navigate these kinds of homebuying hiccups with less stress. Sign up today<\/a> to talk to an agent and learn just how we make homebuying simpler. <\/p>\n\n\n\n\n\n\n

How does an appraisal gap work?<\/h3>\n\n\n\n

After you make an offer on a home, your lender will order an independent appraisal to ensure they aren’t loaning more money than the home is worth. So if you are using a lender to finance the home purchase, they’ll have an appraisal done before they underwrite your loan. <\/p>\n\n\n\n

The appraisal results usually come in a couple of days but can sometimes take up to a few weeks<\/a>. And while a low appraisal may derail your home purchase<\/a>, it can also help protect you from buying a home that’s worth less than the seller\u2019s asking price. If you purchase a home for more than it’s worth, you may lose money when it’s time to sell.  <\/p>\n\n\n\n

If the home’s appraised value is the same as or more than the purchase price, the sale will likely move forward as planned. If the property appraises for less than the contract price you agreed to, that is called an appraisal gap. Because your lender won’t loan more than a specific percentage of the home\u2019s appraised price, you will have to make up the difference between the appraised value of the home and the purchase price. <\/p>\n\n\n\n

Let’s take a look at an example:<\/strong><\/p>\n\n\n\n

You found a home you love and offered $300,000 with a 20% down payment. Now, you need to take out a mortgage loan of $240,000 to cover the rest. Most lenders require that their loan not exceed 80% of the value of the home so, in this example, paying 20% down for a $300,000 home puts your loan in this qualifying loan-to-value ratio (LTV). But what if the appraiser says the home is actually worth a little less than the $300,000 you’ve already agreed to pay? <\/p>\n\n\n\n

Suppose the appraiser values the home at $275,000. There will be a gap between what your bank will lend you and how much you will need to cover the purchase of the home. The $240,000 you needed is now 87% of the value of the home ($240,000 mortgage loan \/ $275,000 appraised value of the home), which exceeds the lender\u2019s maximum. <\/p>\n\n\n\n

If the lender requires a standard maximum LTV of 80%, they would now loan you $220,000 for the $275,000 appraised value. In this example, there is a $20,000 difference between the $240,000 you were approved <\/em>to borrow and the $220,000 you can<\/em> borrow for this home.<\/p>\n\n\n\n

Purchase price<\/strong><\/td>20% Down payment<\/strong><\/td>Amount needed<\/strong><\/td><\/td><\/tr>
$300,000 <\/td>$60,000<\/td>$240,000 <\/td><\/td><\/tr>
Appraised value<\/strong><\/td>80% loan-to-value<\/strong> maximum<\/strong><\/td>Appraisal gap<\/strong> (amount needed – loan-to-value<\/em> maximum<\/em>)<\/td><\/td><\/tr>
$275,000<\/td>$220,000<\/td>$20,000<\/td><\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n

What to do when there is an appraisal gap<\/h3>\n\n\n\n

At this point, you have a few options:<\/p>\n\n\n\n