Does a buyer have to come in with the difference if the appraisal comes in low?
I’ve been hearing a lot of clients (and realtors) being concerned that if the appraisal comes in, say, $20K lower than the agreed upon purchase price then they have to come up with that $20K in addition to what they were coming to the closing with before.
But if they were planning on putting more than the minimum 3% or 5% down, then there’s another strategy you and your clients should know about that could save a deal.
Say your client is putting 20% down on a $400K purchase, so they’re planning on coming in with $80K plus closing costs and prepaids. Then let’s say the appraisal comes in at $380K. Instead of the client having to come in with $76K (20% of $380K) plus $20K for a total of $96K, they could use Mortgage Insurance in one of 2 ways…
- Keep the downpayment at $80K and have a monthly MI payment
- Keep the downpayment at $80K and have a single up front payment
Most buyers assume that they need to be ready and able to cover an appraisal gap and that’s just not possible for some buyers who have limited down payment assets. MI gives buyers options that can potentially allow them to buy a house they didn’t think they could.