A mortgage is usually the largest sum of money you’ll borrow in your lifetime. And because it’s such a substantial amount of money, lenders want to know the property is worth what they’re lending you, so they request a home appraisal.
Sometimes, the value you expect a home appraisal to fetch isn’t the same as what the appraiser deems it to be. If your appraisal comes in low, what options do you have?
1. Appeal the appraisal
The first and most influential option is to appeal or challenge the appraisal. An appraiser is an expert in their field, but that doesn’t mean they get everything right. An appeal simply presents factors to support valuing the home higher. That can include:
- Comparable properties, or “comps,” that sold for a higher value.
- More recent comps than listed on your appraisal.
- Home improvements not factored into the appraised value.
- Neighborhood factors that can increase the price such as amenities, low traffic, and low HOA fees.
It could even be as simple as an error in calculation if the appraiser has an incorrect square footage recorded. However you plan to appeal the appraisal, ensure you have documented proof to support your position.
2. Switch lenders
If you don’t want to appeal or the appeal didn’t go your way, you can try your hand at another lender for your mortgage. The hope is that another lender will use a different appraiser for your valuation.
There’s a chance it can work in your favor with a higher appraised home value, but it could also be the same as the first appraisal or, worse yet, a lower valuation. Keep in mind that you’ll likely be responsible for the cost of both appraisals, and it’s usually $300 or more.
3. Put more money down
Consider this situation: You’re buying a home and need 20% down payment to obtain a mortgage. You have the $60,000 for it. You agreed to $300,000 for the home but the appraised value comes in at $270,000. The lender won’t give you more than $216,000 for your mortgage, but you have a shortfall of $16,000.
An option to still continue with the mortgage is to put additional money into your down payment. That’s assuming you have access to the difference. Or, if you can’t come up with the money, you may need to walk away from the deal and find a lower-priced property.
4. Borrow less against your equity
If you’re looking to tap into your home’s equity to leverage it elsewhere or to make a purchase, an unexpectedly low home appraisal will affect how much equity you have access to. Typically, lenders won’t let you go beyond 80% of your home’s value between your mortgage and borrowing against equity.
Rather than taking out a $50,000 line of credit, you may only have access to $20,000, for example.
5. Wait it out
Sometimes it makes sense to just defer your spending. If the home appraisal comes in low for a home you want to buy, it could be that the realtor set the price well above the market value. It could also be that the appraiser saw issues that you didn’t. Consider walking away from the deal and finding a different home.
Or, if you’re refinancing or establishing a home equity line of credit, simply waiting might be the right plan. The longer you pay down your mortgage, the more access to equity you have.