closing the gap

Understanding Appraisal Gap Coverage

Today, let’s dive into a term that’s been buzzing around lately—appraisal gap coverage. But what does it really mean? Let’s break it down.

When you’re buying a home with a mortgage, your lender typically requires an appraisal. This appraisal validates the purchase price and acts as a safeguard for both the lender and you, the buyer. It ensures that the loan amount is based on the home’s worth as determined by comparable sales in the area.

What is an Appraisal Gap?

In a hot market where home prices are rising quickly, the appraised value might be lower than the agreed-upon price. This difference is known as the appraisal gap.

To secure the home, some buyers are offering to cover this gap with additional cash at closing. Essentially, they’re agreeing to pay the difference between the appraised value and the purchase price.

Why Consider Appraisal Gap Coverage?

If you have extra cash saved up, covering an appraisal gap can be a great strategy. It helps you stand out in a competitive market and shows sellers you’re serious about buying their home.

However, covering an appraisal gap isn’t without risks. You need to make sure you’re not depleting your savings or emergency fund. 

 It’s essential to discuss your options with your lender to understand the potential consequences. They might offer alternatives like restructuring your loan or exploring gift options.

Importance of an Experienced Real Estate Agent

Navigating appraisal gaps and competitive offers can be challenging. That’s why having an experienced real estate agent is crucial. We can help guide you through the process, protect your interests, and ensure you make informed decisions. If you’re looking for a knowledgeable agent in this competitive market, don’t hesitate to reach out.

Now that you learned about Appraisal Gaps, you might want to learn more about the biggest concerns buyers face in our blog How to Beat 3 Biggest Challenges in Home Buying

Compare listings