Here’s what you need to know about waiving appraisal contingencies.
In today’s market, buyers are doing all they can to make their home offers stand out. This includes waiving contingencies, and today I’d like to talk about one that many buyers seem to have some misgivings about: the appraisal contingency.
Regardless of what kind of market you’re in, it’s important to know your finances. If you know your finances and can afford to cover an appraisal gap, you shouldn’t be afraid of removing an appraisal contingency. Each home has an appraised value and a market value. For the appraised value, appraisers assign homes a value based on past comparable home sales. However, prices are rising so quickly that it’s been hard for appraisers to justify the prices buyers are paying now. So, there’s a gap between the appraised value and the market value.
Let’s say you’re buying a $1 million property and you’re pre-approved for a 20% down conventional loan. This means the lender will give you 80% of your home’s value as a loan. Now, let’s say the home appraises for $900,000 but you offered $1 million—there’s a $100,000 gap, and they’ll only give you 80% of the $900,000. You have to come in with an additional $100,000 down to cover the gap.
“Prices are rising so quickly that it’s been hard for appraisers to justify the prices buyers are paying now.”
If you have the money to cover this gap, you’ll increase your down payment and reduce your loan volume, which lowers your monthly payment. So, talk to your lender and see how much additional money you could use on a gap. You could even use tools like PMI or SPMI if you don’t have enough money to cover a gap. By doing either of these things, you can confidently waive your appraisal contingency and win the home of your dreams.
If you have any questions or would like more information, feel free to reach out to me. I look forward to helping you soon.