Effects An Appraisal Can Have On Your Mortgage Loan

3 February 2020
 Categories: , Blog


One of the steps you must complete when you are buying a house is finding out the value of the house, and this is accomplished through a service called an appraisal. If you are buying your first house, it is important to know that this service is absolutely vital for the home-buying process, and the appraisal amount can affect your mortgage loan. Here are three things to understand about how the appraisal of the house can affect your loan.

Your Loan Is Based on a Percentage of the Home's Purchase Price

The appraisal amount does not just reflect the current worth of the house you are buying, but it also tells the bank how much to loan you. When you got preapproved, the bank would have told you what percentage you would need to put as a down payment, and they would give you the rest in the form of a loan. For some loans, the bank might offer 80% of the appraised value. In other cases, it might be as high as 96.5%. In any case, the bank will not loan the percentage based on the price you are paying; instead, the percentage is based on the value of the house from the appraisal.

The Percentage Will Remain the Same

The percentage the bank will loan you will remain the same, even if the appraisal is lower than expected. For example, if you offered to buy a house for $200,000 and the bank was willing to loan you 80% of this value, they would loan you $160,000 if the house appraises for the full amount. If the appraisal is only $190,000, they will still loan you 80%, but this means they will only loan you $152,000.  

The Amount Down Might Change

If you continued on with buying the house for the full $200,000, you would need to come up with more cash to put down. If the house had been appraised for this amount, you would need $40,000, but if it appraised for the lower amount, you would now need $48,000 for the down payment if you want to continue with the deal.

If the appraisal reveals a price that is equal to your purchase price or higher, you should have no problems getting the loan with the terms you originally agreed to. Talk to a home mortgage program service to find out more about appraisals and the effects they have.