What if Your Home Does Not Appraise for What You Owe on It?

What if Your Home Does Not Appraise for What You Owe on It?
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If you are thinking about putting your home on the market, or you are looking into refinancing, an appraisal will provide an estimated value of your home. If your home is appraised at less than what you owe, you are experiencing what is commonly referred to as an underwater mortgage. While it may be frustrating to be in this situation, you still have options to sell or refinance, although it may be tricky.

The Appraisal Process

An appraisal estimates the value of your home based on a number of attributes. The appraiser takes into consideration the size, age, and number of rooms and compares them to other homes of similar size, age and location to determine how much your home is worth in typical market conditions. An appraisal is important in both selling your home or applying to refinance your mortgage, and is used by banks to determine whether or not they will finance a buyer. If you are selling your home and have an all-cash buyer, the appraisal will not necessarily determine whether or not the buyer continues on with the purchase.

Underwater Mortgages

When you have an underwater mortgage, you have negative equity in your home. During the housing market crash, many homeowners found themselves in this situation, and some ended up walking away from their home altogether. As the housing market improves, you may see the value of your home raise over time. Even if your home value remains less than what you owe, you can still try to refinance or challenge the appraisal.

Know Your Options

Government programs can help you refinance your home even if you are under water, although you may find it difficult to refinance through a traditional lender. Another option is to wait for the housing market to improve before trying to sell or refinance. If you are trying to sell your home, a buyer will rarely be approved for a loan that is higher than the appraisal, so you can expect to take a loss. If you aren’t planning on selling your home or refinancing, the appraisal will not affect your current mortgage.

Challenging a Low Appraisal

If you believe there are errors or misrepresentations, it’s possible to get a second appraisal done on the home. For a fee, the appraisal can be reviewed by a different appraiser to see if it’s possible that the comps listed were not relevant or that there were errors on size or number of rooms. Unless you see a major error or mistake, however, it may not be worth the money to pursue a second appraisal.