What Is An Appraisal Gap And How Does It Affect You?

What Is An Appraisal Gap And How Does It Affect You?

What is an Appraisal Gap?

If you’ve been searching for a home in this crazy real estate market then you’ve probably heard the term Appraisal Gap. The Appraisal Gap is the difference between the appraised value of your home and the contract sale price of the home. For instance, if you’re under contract to purchase a home at $900,000 and your appraisal comes in at $850,000, you have a $50,000 Appraisal Gap.

How does this affect you?

The Appraisal Gap comes into play more when you’re financing a home purchase than if you were paying cash for the home. A lender will only loan you money for your mortgage based on the appraised value of the home. Depending on how your contract is written, you may be required to cover the Appraisal Gap with additional cash at closing.
In the example above, if you were going for a conventional mortgage with 20% down, your $900,000 purchase price would require $180,000 down with a mortgage of $720,000. However, the appraisal came in at $850,000 so the lender will only loan you money based on $850,000. This means your down payment will now be $170,000 with a mortgage of $680,000. If your contract requires you to cover the Appraisal Gap with additional cash at closing, then the $50,000 Appraisal Gap will get added to your downpayment amount of $170,000 requiring you to come to closing with $220,000.

Leave a Reply

Your email address will not be published. Required fields are marked *

six + 1 =