The Sonoma County mortgage market is fluid in the availability of mortgage money. Mortgage lenders however, are concerned about one thing: that is risk. When making home loan, a mortgage lender is concerned about risk above and beyond anything else. They want to make sure the loan they are funding can carry “representation and warrants” to Fannie Mae and Freddie Mac.
If there is a any degree of risk associated with funding the loan, that affects saleability to Fannie or Freddie, the mortgage lender will not fund the loan or will find a way to fix the problem before the loan can be sold.
Enter: dealing with a low appraisal on a real estate purchase transaction.
One of the biggest forms of risk mortgage lenders take is what they lend their money against. They want to make sure they are lending practices cover all risk tolerance .
This is why mortgage lenders will lend against the appraised value or the purchase price whichever is lower. So if you are in the process of purchasing a house and your value comes in lower, you have a few choices in being able to move forward with your purchase loan transaction.
- If you’re appraisal comes in lower-make sure to have a conversation with your real estate agent and lender about contractual time frames because you would likely need a purchase contract extension.
- What caused the property to come in lower? Did the underwriter being conservative have a conversation with the appraiser and ask them to lower the purchase price? This happens, be aware of it because the appraisal can become discretionary.
- Purchase the property at the appraised value. This means the buyer and seller agree to do a real estate purchase contract addendum to reduce the purchase price to the appraised value. The buyer then purchases the property based upon the new contract price which is equal to the appraised value.
- You can also elect to pay the difference between the purchase price and the appraisal however doing this means that you’re buying the property higher than what the appraised value is. That is certainly a choice you have and it will also preserve your mortgage interest rate that you have locked in.
Most of the time your real estate agent and mortgage lender will have these types of concerns taken care of before you release your loan contingency in the mortgage loan process.
*Sometimes things do not go according to plan.
Here is what happens when dealing with a low appraisal on a purchase transaction after you’ve released loan contingencies.
This is the point time where you just need to take a deep breath and relax. If you have already released loan contingencies and the appraised value is in question you can in most cases continue moving forward with purchasing of the property.
Get your real estate agent and lender involved.
Sometimes mortgage loan underwriters can be overly conservative and they can reduce the value after you’ve released loan contingencies making things unpleasant.
- Find out specifically why the purchase price was reduced
- Have there been any other closed sales that come on the market since the appraisal was originally completed?
Most mortgage lenders have an underwriter, a senior underwriter, and an escalation committee which reviews the highest possible credit risk loan scenarios. The best course of action would be to obtain evidence of the other closed sales supporting higher value/original value and make sure your lender sends that into his or her escalation committee for final review. The mortgage lender is just trying to dot their I.’s and cross their T.’s and cover their butt too.
*Note the lender you’re working with is willing to do this, that’s a great sign the lender you have selected is proactive and is working on your behalf.
Every mortgage loan scenario is uniquely different. Each property contains an appraisal specific to that property and as a result, each mortgage loan is looked at differently relative to the borrower’s credit qualifying ability.
Give us a call or contact with your loan scenario today. We can discuss dealing with the low appraisal on a purchase transaction.