My realtor has explained it but I just need this dumbed down. When I offer $5,000 in appraisal gap coverage, what does that mean? Does it automatically mean I’ll pay that, or in what specific situations will I pay it?
Maybe I just don’t get what “appraise” means but the whole idea is kind of confusing.
In: 2
You offer $400,000 for the house, but when the bank comes calling to appraise the home before signing your loan, they think it’s only worth $395,000. They don’t want to be stuck with an asset that’s worth less than they’ve sunk into it, so they won’t loan you more than the appraised value.
That $5,000 in gap coverage is a promise to the seller to cover the difference between the agreed offer and the loan amount from the bank, that way even if you can’t get the loan you wanted, he still gets his full $400k.
It just means if the house doesnt appraise at the price you pay for it, the bank is going to need a larger down payment to get their loan to value metric in acceptable range.
The bank will only loan you money up to the appraised value of the house. If the appraisal comes in lower than the amount you offered, then you can’t finance the whole offer amount through the mortgage, but you can offer to oay some or all of the gap in cash out of pocket. So, if you put in a $400k offer for example with a $5k appraisal gap and the bank appraises the porperty at $380k, then your offer would basically be valued at $385k, since you’ll finance $380k, and pay $5k above the appraised amount. If the appraisal comes in on the dot at $400k then you would just finance the entire offer amount and won’t need to pay the additional $5k.
Appraise means for the bank to have an independent person who’s an expert in determining value of real estate tell the bank what the house is worth. If the house will be used as collateral for money they’re lending, they want to make sure it’s worth what you say it is.
Let’s say you are buying a house and the bank requires 10% down. Home was priced at $200k and you bid $210k with 10% down, or $21k. If bank appraiser says it’s worth $210, you’re golden. If they say it’s worth $200k, then you would need to come up with an additional $9k so that bank loan still equals 90% of their value ($180k loan, with you now having to put down $30k instead of $21k).
Its coverage for when the sum of money valued for the thing your filing a claim for has depreciated to be less than your claim will pay out and the gap coverage covers $ in the event that sum is less than the payout after deductible.
:edit: disregard I mistakenly thought u meant in context of an insurance claim not for an appraisal
My realtor has explained it but I just need this dumbed down. When I offer $5,000 in appraisal gap coverage, what does that mean? Does it automatically mean I’ll pay that, or in what specific situations will I pay it?
Maybe I just don’t get what “appraise” means but the whole idea is kind of confusing.
In: 2
You offer $400,000 for the house, but when the bank comes calling to appraise the home before signing your loan, they think it’s only worth $395,000. They don’t want to be stuck with an asset that’s worth less than they’ve sunk into it, so they won’t loan you more than the appraised value.
That $5,000 in gap coverage is a promise to the seller to cover the difference between the agreed offer and the loan amount from the bank, that way even if you can’t get the loan you wanted, he still gets his full $400k.
It just means if the house doesnt appraise at the price you pay for it, the bank is going to need a larger down payment to get their loan to value metric in acceptable range.
The bank will only loan you money up to the appraised value of the house. If the appraisal comes in lower than the amount you offered, then you can’t finance the whole offer amount through the mortgage, but you can offer to oay some or all of the gap in cash out of pocket. So, if you put in a $400k offer for example with a $5k appraisal gap and the bank appraises the porperty at $380k, then your offer would basically be valued at $385k, since you’ll finance $380k, and pay $5k above the appraised amount. If the appraisal comes in on the dot at $400k then you would just finance the entire offer amount and won’t need to pay the additional $5k.
Appraise means for the bank to have an independent person who’s an expert in determining value of real estate tell the bank what the house is worth. If the house will be used as collateral for money they’re lending, they want to make sure it’s worth what you say it is.
Let’s say you are buying a house and the bank requires 10% down. Home was priced at $200k and you bid $210k with 10% down, or $21k. If bank appraiser says it’s worth $210, you’re golden. If they say it’s worth $200k, then you would need to come up with an additional $9k so that bank loan still equals 90% of their value ($180k loan, with you now having to put down $30k instead of $21k).
Its coverage for when the sum of money valued for the thing your filing a claim for has depreciated to be less than your claim will pay out and the gap coverage covers $ in the event that sum is less than the payout after deductible.
:edit: disregard I mistakenly thought u meant in context of an insurance claim not for an appraisal
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