BANK APPRAISALS AND REFUSAL OF MORTGAGES





12.01.21





Before lenders fund the purchases of homes, they almost always require value appraisals to ensure the homes being bought are actually worth their prices. In fact, many home sales have been canceled after a poor appraisal caused the lender to disapprove a mortgage loan.


Appraisals and Approvals


Property appraisals are a standard component of the mortgage approval process. In residential mortgages, appraisals are used by lenders mainly to protect themselves from extending risky loans or at least risky loans at low interest rates. For example, a mortgage lender will use a property appraisal to gauge whether the home for sale is in good condition. A home in poor condition selling for a price that is too high may create too much risk for a lender.


Low Property Appraisals


Low property appraisals are a common reason for mortgage disapproval due to an appraisal. Low property appraisals occur when appraised values are below requested mortgage loan amounts. When you apply for a mortgage loan, its approval will depend on the home you want to buy appraising for at least its loan amount. For example, if you've found a home for $400,000 and want to borrow $340,000 to purchase it, the home must appraise for at least $400,000.


Poor Repair Conditions


Professional real estate appraisers are trained to consider the repair condition of the properties they are appraising. Property appraisals are not full-scale home inspections however, mortgage lenders consider appraisals as sufficient to determine property repair conditions. A property's repair condition is especially important in lending involving federally backed mortgages, where the safety, security and soundness of a home is important. Outside of a property rehab-type mortgage, if the home you are buying is in poor condition, your loan may be at least temporarily disapproved.


Appraisals and Disapprovals


Mortgage lender policies vary when disapproving mortgage loans based on appraisal results. Whether an appraisal causes your mortgage loan to be permanently disapproved also depends on why that appraisal is poor to begin with. Low property appraisals, for example, may not result in permanent disapproval if property sale prices are adjusted downward or borrowers make up sale price differences. Mortgage disapproval based on a property's poor repair condition, though, could mean the lender will not want to extend a loan on that home due to its condition.


If you have any questions about buying or selling a home or other real estate law questions, contact The Law Office of Joseph A. DiPiazza, LLC at 201-494-2800.