What do I do if I have been denied a mortgage after an appraisal?
You have agreed on the price of the house and also the conditions of the mortgage but when you thought it was done, the appraisal suddenly changes everything.
In other words, you have a house, but you don't have the mortgage money to pay for it. What can you do? This is a reality that can happen, but it is not the most common and there is a solution.
Why does it happen?
To understand this, let's remember how you can apply for a mortgage . Before granting you the mortgage, all financial institutions carry out the credit profile or solvency profile. This is the responsibility of the risk department. And it is one of the key parts to know if you will be granted the mortgage.
This is where they analyze your income, financial situation, and also the percentage of financing on the value of the home, which is determined by the appraisal of the house.
In general, the bank will not need to know the appraisal value on initial contact, and the purchase price will be enough to get an initial idea of whether they can grant you the mortgage. However, the appraisal will be essential because the amount that the bank will lend you will be conditioned by the value of the property that an approved appraiser has reflected in his official report.
To help you understand this better, let's look at an example. You have found the house of your dreams, reached an agreement with the owner for 150,000 euros and are looking for a mortgage. As you want a quick mortgage and you know that not all institutions will finance the entire purchase of the house, you have saved 30,000 euros or the equivalent of 20% of the price, which you will contribute on your own.
The time comes to value the house and the result is that it is not worth 150,000 euros. Its appraisal value is 130,000 euros less. The first thing you do is put your hands on your head and wonder if you are making a good purchase, the second thing is to discover that they have refused you the mortgage. And the fact is that the entity will only finance up to 80% of the appraisal value of the house or 104,000 euros. The rest you will have to find the formula to find.
The summary of what happened is that, after the appraisal, the risk has changed considerably for the financial institution and the amount of the mortgage has to be recalculated. Remember that a mortgage is a loan where the house acts as collateral and the house you wanted is no longer worth what you thought.
What to do if the bank denies you a mortgage after the appraisal
First you have to find out why the mortgage has been rejected and then find a solution with the entity.
The immediate response is easy to ask another lender. This seems logical, but it is not a good solution unless you want to re-appraise the property and risk having another appraiser come to the same conclusion. If this happens, you will have the same problem. If you want a new mortgage, it will have to be one that covers more than 80% of the appraised value of the property.
Fortunately, there is an alternative to this problem. The most common is to find a guarantor to back you up or to sign a double-guarantee mortgage, in which a second property will act as additional collateral for a period of time (until you have paid enough mortgage money so that the loan represents 80% of the appraisal value).
Finally, you could take out a personal loan to cover the difference. This is the least convenient option, because it affects your borrowing capacity and that is one of the factors that the entity studies when granting you the mortgage.
A financial institution can help you solve these problems if it has mortgage experts who offer you specific solutions as the problems arise.