When selling your home, it is almost a certainty that your buyer will be financing their purchase. If you’re lucky enough to attract a cash buyer, you don’t have to worry about what I’m covering in this post. However, it’s important to understand this stuff anyway. Over the years, I’ve heard a significant amount of home owners mistakenly explain why they would be safe from their house under appraising. Unfortunately, they are completely misunderstanding how the bank uses the appraised value to determine the loan to value ratio. What is most troublesome to me is that I’ve heard other real estate agents get this wrong too! I don’t understand how that can be.
I apologize in advance for all the numbers. Trust me; this is going to be much easier than it looks and sounds. The mistake many people make is that as long as the loan amount is less than the appraised value of the home, the bank will be satisfied. This is COMPLETELY wrong! I understand how this mistake is made. It’s important to remember that the loan is based upon a loan to value ratio. If a house under appraises, the loan to value ratio is thrown off. Continue reading What you need to know when it comes to a lender’s appraisal of your home