Posted on July 13th, 2021
With the housing market so competitive, and properties often going above asking, getting a mortgage can be a little more stressful.
One major component of the mortgage approval process is determining the collateral value of the subject property, otherwise known as the appraised value.
A bank or lender generally won’t approve you for a home loan without getting an independent appraisal first, at your expense.
Simply put, they want to know that the property you’re buying or refinancing is actually worth what you or the seller think it’s worth.
Even if you’re a stellar borrower with an excellent credit score and tons of money in the bank, a valuation issue can sink your loan approval.
While this typically isn’t a problem, it can muddy the waters if the appraisal happens to come in low.
The good news is we’re in a rising real estate market, with home prices experiencing their best annual gains in decades. They’re also at new record highs.
This means even a bid over asking could easily come in at value when the appraisal is conducted.
But what if it doesn’t? Often, the home buyer would need to make some adjustments to their financing to “make it work.”
The most common tactic is to put more money down to keep the loan-to-value (LTV) ratio at its original level.
Unfortunately, this isn’t always an option if a buyer is light on cash, and home sellers (or at least their listing agents) know this.
This is why they favor cash buyers over those who need a home loan to get the job done, and may balk if you request an appraisal contingency.
Introducing the Better Appraisal Guarantee
- Keep all your locked-in loan terms (interest rate, APR, cash to close, etc.) regardless of the appraised value
- Must be a conforming purchase loan on a primary residence with a loan amount below $822,375 and a minimum 10% down payment
- Buyer must use a Better Real Estate agent or partner agent and get their mortgage from Better
- May also qualify for up to 1% of the purchase price in lender credits to offset closing costs
To level the playing field somewhat, Better Mortgage has launched their “Better Appraisal Guarantee.”
In short, they’ll honor the monthly payment, mortgage rate, APR, and cash to close reflected on your valid locked Loan Estimate (LE), regardless of what happens with your appraisal.
For example, if you offer $600,000 for a house and put down 10%, and the value comes back at $550,000, Better Mortgage will still honor your locked mortgage rate and all the details behind it.
In this scenario, the LTV would actually rise from 90% to about 98%, which would generally require you to bring in more money at closing.
If you didn’t, either the loan wouldn’t get approved or at minimum you’d now need to pay private mortgage insurance (PMI) and the mortgage rate would theoretically be higher to compensate for greater risk.
Aside from these buy-side advantages, the seller would also benefit because you wouldn’t need to retool your mortgage. And as such, could close without delay and no concessions on their end.
In a sense, this would align it somewhat with the certainty of a cash offer (minus the rest of the mortgage loan process), which could also give you an edge in a bidding war.
The caveat is that this new feature is for Better Mortgage customers who also use a Better Real Estate Agent or a Better Real Estate Partner Agent.
Like other companies, Better is trying to control more of the home buying process than just the mortgage piece via their “Better Real Estate” division.
To sweeten the deal, Better is also offering up to 1% of the home sales price in lender credits if you use Better Mortgage and a Better real estate agent.
In order to qualify, it has to be a conforming purchase loan with an amount less than $822,375, with a down payment of at least 10% on a primary residence.
To sum things up, if you don’t already have a real estate agent and like Better as a mortgage lender, this could be a pretty exceptional value-add.
Of course, always put in the time to shop around with other lenders and real estate agents to ensure it’s the right fit.
About the Author: Colin Robertson
Before creating this blog, Colin worked as an account executive for a wholesale mortgage lender in Los Angeles. He has been writing passionately about mortgages for 15 years.