Once your offer is accepted, and you鈥檝e applied for your mortgage loan, your lender will order what鈥檚 called a home appraisal.
It sounds similar to a home inspection, but the two services aren鈥檛 the same.
With a home inspection, the inspector is looking to find defects and issues with the home itself 鈥� its structure, the roof, electrical system, etc. This is for your benefit as a homebuyer (no one wants to spend their hard-earned cash a lemon!).
A home appraisal, on the other hand, is for the lender鈥檚 purposes. It allows them to assess the property鈥檚 value accurately, which they鈥檒l then use to calculate your maximum loan amount.
Lenders won鈥檛 let you borrow more than the home鈥檚 value, so the appraisal is an essential step in the homebuying process.
What can happen after an appraisal?
Once the appraised value comes in, you鈥檒l need to evaluate it against the purchase price you agreed on with the seller.
If the appraised value is higher than or equal to your offer, then all is well. You鈥檒l proceed as expected and finalize the purchase of your first home.
If the appraised value comes in lower than your offer, though, you鈥檒l have three choices:
- Make up the difference: If you offered $200,000 for the house, but it only appraised for $199,000, you could make up the difference in cash. That would mean paying the $1,000 out of pocket, in this case.
- Renegotiate: With this option, you鈥檒l go back to the seller and ask them to lower the purchase price to match the appraised value. Depending on the market you鈥檙e buying in, not all sellers will do this. But if the difference is small, or you鈥檙e well into the transaction, they may be willing. Be sure to ask your real estate agent if this is a good option in your specific situation.
- Cancel the deal: As long as you have an appraisal contingency in your sales contract (most do!), you can back out of the transaction without penalty. Again, ask your agent if this is an option for you.
