Today’s housing market is a little crazy, to say the least. We’re seeing many changes in interest rates and costs of homes being listed. There is currently less supply than there is demand. A market like this, along with rapid changes, makes appraisal gaps much more common. What is an appraisal gap, and how does it affect your mortgage? Read on to learn more about this situation from the experts at GVC Mortgage.
What is an Appraisal Gap?
When the appraised value of a property up for sale is less than the agreed-upon contract purchase price, this is known as an appraisal gap. Appraisal discrepancies are rather typical in a seller real estate market. When there are more buyers than there are properties on the market, property values increase significantly. When property prices increase more quickly than previous sales of comparable homes, appraised values find it difficult to keep up.
For example, let’s say you’re looking to purchase a home that is listed at $250,000. You make an offer of $275,000 in hopes that the seller picks your offer out of the bunch. Now, it’s time for an appraisal and the house comes back with a value of $255,000. You would then be on the hook to cover that additional $20,000 as it would not be covered by your mortgage.
How Does an Appraisal Gap Affect Your Mortgage?
You can choose to pay the difference between your offer and the evaluated value in cash. Another choice is to just walk away, which would be effective if your purchase agreement contains an appraisal contingency.
Other options are a little more complicated and can extend the sale process or upset the seller. You could try to renegotiate the price with the seller in hopes that they would accept a number closer to the appraisal. Or, you could seek an appraisal review to see if you can get the appraisal amount closer to your actual offer. None of these options are necessarily considered ideal, but they are manageable and a fairly common piece of the home buying experience.
GVC Mortgage is ready to assist you through the entire loan process. We’ll make sure you understand all of your mortgage options and provide the resources you need to be successful in the purchase of your new home. Contact us today at (317) 564-4906 to speak with a professional. We serve Indianapolis, IN, and the surrounding areas.