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When purchasing a residential resale property on a housing loan, the appraisal can come in lower than the asking price. Wondering what measures to take, when facing a low appraisal? Read this post to learn more.

Typically, during a home purchase transaction, the seller and the buyer, upon agreement, decide the price of the property. But, if the deal is being completed on a housing loan, it is necessary for the loan provider to come to a consensus with the property value, decided by the buyer and the seller in concert.

When the buyer applies for a Home Loan, the loan providers carry out an appraisal, to determine the correct market value of the property. In several instances, the appraisal might come in lower than the agreed-upon price. So, here’s what a home appraisal means, and the possible ways of handling a low appraisal.

What is a home appraisal?

When a borrower applies for a housing loan, one of the most critical steps taken by the loan provider is to conduct the home/property appraisal. The lender employs a professional appraiser to verify the true value of the property based on factors like the location, property area, and selling price of similar properties in the locality.

In case a borrower fails to repay the loan, the lender would ideally want to ensure that they recover the amount by selling off the property to a different party. In simple words, this is a risk-mitigating measure, taken by the loan provider.

What can you do if the appraisal is low?

A lower appraisal dictates a gap between the buyer and the seller's mutually agreed upon price and the loan amount the lender is ready to offer. Here are a few measures that can be taken when facing low loan appraisals -

1. Make a Bigger Down-Payment

Lower appraisals indicate a lower loan amount than what the borrower needs, to purchase the property. Therefore, if possible, the buyer can make a bigger down payment to eliminate the appraisal gap.

For instance, if a buyer needs Rs 50 lakhs as a Home Loan, but the lender agrees to offer only Rs 45 lakh after appraisal, the borrower can contribute Rs 5 lakh on their own, to make up for the appraisal gap.

2. Renegotiate the Deal

Another option is to renegotiate the deal with the seller. In some cases, the seller might agree to lower the property price, from what was agreed upon previously. If this works out, there remains no property appraisal gap to fill in, and you can directly proceed with the loan.

If a reduced rate can be reached, it can also secure significant savings for the buyer/borrower. But in most cases, such a possibility is only ensured in a buyer’s market, where the demand for real estate is not very high.

3. Consider a different Lender

As already mentioned, professional property appraisers are employed by the lenders themselves. So, if the appraiser of a particular loan provider has quoted a lower appraisal, another lender might be offering the required appraised value.

Ensure that you consult with the new lender before applying for a Home Loan and initiating the approval and the financial appraisal. This way, you save time and get the required amount at the earliest. 

4. Look for another Property

If none of these measures work in your favour, then it is recommended that you call the deal off, and look for another property. However, if you’ve made any deposit in good faith with the seller, they have the right to not return the deposit amount in some cases, as per the sale agreement.

It is always wise to consider a professional attorney or a lawyer to prepare the contract papers for you, and help you understand the terms and conditions.

Buying a Home with Lower Appraisal

If the loan appraisal has come in lower than asked for, it can still be possible to purchase the property you’ve chosen, employing one of the measures discussed. If you’re keen on the best outcome, nothing’s better than an open evaluation of the situation with your lender and seller.

Before applying for a Home Loan, ensure that you choose a reputed loan provider that offers enhanced flexibility and complete support, to guide you through the process.

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