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WHAT DOES COVERING AN APPRAISAL GAP MEAN?

Friday, June 10, 2022   /   by Ameil Gill

WHAT DOES COVERING AN APPRAISAL GAP MEAN?

"Appraisal Gap Coverage" is a term that has been a hot topic of conversation since 2020 and 2021 with the increase in home values and shift in the overall market. But what does it really mean? When you purchase a home with a mortgage, the lender usually requires an appraisal to validate the purchase price and "protect" themselves to ensure that they are only loaning you what they are told the home is "worth" based on comparable homes. This is to protect you as well so that you are not underwater on your home value before you even settle.
So what happens when the value of the appraisal comes in low? In an aggressive market with pent-up buyer demand and historically low inventory, offers are being made with stronger, more creative terms, such as providing assurance that any difference between the contract price and the appraised value (or up to a certain amount of the difference), will be made up in additional cash at settlement. It's important to understand the risk involved with covering an appraisal gap, along with your options if the appraisal does happen to come in lower. There is no better time for you to have an experienced (well-connected and creative) agent on your side to explain how you can structure your offer to win the home of your dreams. You will want to partner with an agent AND lender who will share all available options, such as restructuring your down payment, adding a second mortgage, and buying-out mortgage insurance, just to name a few.
Pro tip: Speak with your lender before assuming you can actually provide"gap coverage" - you don't want to drain your entire savings account or rainy day fund in doing so. Looking for an experienced agent to help guide you and protect you in this aggressive market? Send me a message and let's chat!
#realtor #realestate #realestateagent #home #homebuying #mortgage
REMAX Realty One Inc. - The Gill Team
Ameil Gill
50 Burnhamthorpe Road West Sussex Centre Ste #102
Mississauga, ON L5B 3C2
416-884-1359

Information is provided exclusively for consumers’ personal use and may not be used for any purpose other than to identify prospective properties consumers may be interested in purchasing. Data is deemed reliable, but is not guaranteed accurate by the MLS®.
Information is provided exclusively for consumers’ personal, non-commercial use and may not be used for any purpose other than to identify prospective properties consumers may be interested in purchasing. Data is deemed reliable, but is not guaranteed accurate by the MLS®. Copyright 2022 Last Updated June 29, 2022
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