Why Is The Bank Conducting Another Appraisal?
You've found the luxury home of your dreams and have a hefty down payment ready to go, as well as savings for closing costs; and, about three months worth of principal, interest, taxes, and insurance. You're financially responsible and have worked hard to keep your credit score high.
What's more, you earn a very good living and that's the reason you're able to afford such an elegant property. You've got your financing in order, have a good rate, and the seller has accepted your purchase offer. You're now ready to schedule a moving service, and packing things up around your house day after day.
Your buyer's agent has told you the appraisal came back and everything is on schedule. What's more, the home inspection went off without a hitch, as did the pest inspection. As settlement day approaches, though, you get word the bank is going to conduct another appraisal on the home you are excited about buying. You don't like the sound of that unwelcome news and want to know why this is happening.
Knowing About Home Appraisals
It helps to understand a bit about appraisals, why they are ordered, and how they are conducted. It's quite likely you know that it's typically the mortgage lender who orders the appraisal to be one the home. It would come as no surprise that an appraisal is intended to find the true market value of the property being financed. You probably also know that the valuation is calculated based on the home's size, location, features, and its condition. It's also no secret a home appraisal is to have empirical proof that the purchase price is at parity to the property's true market value.
Homebuyers and sellers who expect an appraisal to sail through to closing without a hitch may be surprised to discover that home appraisals today can be problematic. The reasons for the change are complex, but there's no question that mortgage lenders have started to demand more reviews and do-overs. For example, a mortgage lender might demand more scrutiny of an appraisal if the borrower has a marginal credit score or high debt level relative to income or if the property was a foreclosure that was fixed up and flipped by an investor. --MSN Real Estate
The thing about appraisals is that you don't likely know is that they essentially expire. These valuations have a shelf life of sorts; and, even a small delay in the time from the acceptance of the purchase offer to closing day can pose a problem for the lender. It might surprise you to learn that short delays, though having a very small impact on the value, could play a factor the lender views negatively.
Another surprise which could shock you is the fact that many lenders use what's known as Automated Valuation Methods, or AVM's. These are used during the mortgage application evaluation and approval process, even though it's well known in the industry these systems aren't consistently accurate. The majority of buyers and sellers don't know this and are caught off-guard when a lender schedules another home appraisal.
Reasons for a Second Property Appraisal
For real estate professionals, home appraisers, and mortgage lenders, a second appraisal doesn't come as a surprise. It actually happens more than the average consumer would believe. It can lead to confirming the first valuation or contradict it, which will cause the financing to change. Here are the most common reasons another property appraisal is conducted:
- There's been a long delay from purchase offer acceptance to closing. Should three to six months have passed since the first appraisal, the lender is quite likely to order another one to ensure the value of the property and the loan amount are still at parity.
- The type of loan is playing a role. FHA and other types of loans can trigger a second property appraisal. However, if your financing is garden variety, you'll probably not see a second appraisal be scheduled to be conducted.
- The seller could be unhappy with the deal. It's unfortunate, but it does happen from time to time. The seller has rethought the terms of the deal, particularly the selling price, and is now having second thoughts. The seller can provide your lender with comparable sales and the bank will either respond by increasing your financing or backing out.
- The buyer has new debt. Your own actions might be the reason another valuation has been ordered. For instance, if you made a recent purchase, opening up a new line of credit, for furniture or something else, that changes your debt-to-income ratio or DTI. A change in that ratio can cause you to qualify to borrow less, which means the lender wants to take another look at the deal.
Though this might cause a problem, it doesn't mean the deal will be put completely off. Speak with your buyer's agent to learn more about what to expect.