Overcoming Low Appraisals: Strategies for VA, FHA, and Conventional Loans

Low appraisals can be disheartening, especially when you're eagerly anticipating a smooth home purchase. This challenge, while intimidating, isn't necessarily the end of the road. David Xie from the Xie Mortgage Team sheds light on this topic and shares valuable insights on how to address low appraisals.

Understanding Low Appraisals

When you're all set with pre-approved loans and suddenly face a low appraisal, the feeling can be similar to a plot twist in a movie. But, remember, an appraisal is just one individual's opinion of the house's value. And like any opinion, it can vary from person to person. A home might appear perfect to one individual, while another may deem it in need of repairs.

Navigating Appraisals for Different Loans:

1. VA Loans:

• These have a unique feature: If an appraisal appears to be coming in low, the VA appraiser communicates with the involved real estate agents or the lender. This is done under the Tidewater clause, where additional comparables supporting the sales price are sought.
• Unlike other loan appraisals, VA appraisals don’t engage third-party appraisers. Instead, the VA directly hires its appraisers. If a low appraisal does occur, a reconsideration of value is possible.

2. FHA Loans:

• In the event of a low FHA appraisal, you cannot order a second appraisal to bolster the value. But you can provide comparables.
• The goal is to get comparables as close as possible to the house's location, as this increases the chances of an underwriter or appraiser considering them.
• If there's a discrepancy, a second appraisal can be ordered within the first 180 days. This comes in handy if the initial appraiser is uncooperative or nonresponsive.

3. Conventional Loans:

• These loans offer the most flexibility. If a low appraisal occurs, switching lenders might be an option since their appraisers usually don’t transfer.
• If the initial appraisal is deemed deficient or the appraiser is uncooperative, a second appraisal can be ordered.
• Fannie Mae lets appraisers adjust based on market conditions, which can be a positive or negative swing.

A Tale of Two Appraisals:

To highlight the unpredictability of appraisals, David shares an intriguing anecdote. In a recent transaction, the first appraisal came in $30,000 below expectations. Knowing the area well, David was certain the appraisal was unusually low. When they switched from a conventional to an FHA loan, the second appraisal came in $30,000 higher than the first! The crux of the matter is the variance in people’s opinions, comparables used, and adjustments made.

Parting Words:

Low appraisals can seem daunting, but they don't necessarily spell disaster. With expert guidance, providing comparables, and identifying deficiencies, many hurdles can be overcome. So, if you're grappling with a low appraisal, don't be disheartened. There are pathways forward.

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For any questions or if you're in the midst of a transaction facing a low appraisal, David Xie is here to assist. Reach out at 757-478-8493 for expert advice and support.