What will be the impact if the appraisal value is lower than the purchase price I offered?
Whent the market is in an upward direction or you are competing with other bids for a house, it happens from time to time that the appraisal value ends up lower than the purchase price you offered. It’s also because appraisaer are more conservative nowadays while they are facing much more scutiny from the lenders.
In this case, if your down payment is high, you do not need to add more money to your down payment. The impact is mainly the paper loss of your equity. However, if your down payment is 20% of the purchase price, you will need to add more money to your down payment.
For example, your accepted offer price is 600,000. The appraisal value came out at 580,000.
Scenario one: You pay 30% down payment of the offer price with a loan amount of 420,000. With an appraisal value of 580,000, your paper equity percentage became 28% (1-420,000/580,000=28%). Your lost 2% equity in paper. However, it does not impact you to get the same interest rate for your loan and no additional funds is needed.
Scenario two. You pay 20% down payment of the offer price. In this case, your loan amount will be 480000. With an appraisal value of 580,000, your paper equity percentage became 17% (1-480,000/580,000=17%). You lost 3% equity in paper. In addition, it will impact your loan. You will either add addtional 16,000 dollars to bring the equity percentage to 20% or you will need to pay a mortgage insurnce given that your equity is now 17%.
