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Why a Higher Home Appraisal Than Your Offer is Good News for Buyers

Update What a Higher Appraisal Means for Buyers When you're buying a home, the appraisal can be a nerve-racking part of the process. But what happens when the appraisal comes in higher than the purchase offer? While many believe a low appraisal can complicate a sale, a higher appraisal is typically a positive sign, particularly for buyers. Instant Equity: A Financial Booster Imagine you're purchasing a home for $400,000 and the appraisal comes back at $420,000. What does this mean for you? You've just gained $20,000 in equity before you've even moved in! Equity can strengthen your financial position for future endeavors, like refinancing or removing private mortgage insurance (PMI) sooner. This immediate boost sets a positive financial tone for your homeownership journey. The Loan-to-Value (LTV) Ratio Advantage Lenders generally base your loan amount on the lower of the appraised value or the purchase price. In this scenario, since the purchase price is lower, your loan-to-value (LTV) ratio is improved. This can lead to potential benefits down the line like better terms for future loans or savings on PMI. Lower LTV ratios reflect reduced risks for lenders, which can translate into favorable mortgage arrangements. Why Sellers Need to Understand the Appraisal While a high appraisal is great news for buyers, sellers should take note too. They typically cannot increase the sale price based on an appraisal that's higher than the agreed purchase price. It's essential they stick to the signed contract unless a specific clause allows for price changes. This scenario is usually unbeknownst to the sellers since the lender orders the appraisal and only the buyer receives it. The Limitation of Higher Appraisals Although a high appraisal is often good news, it doesn't change your loan structure or down payment. Customers should be clear that lenders will not adjust the required down payment or mortgage terms based on higher appraised values; instead, the existing agreements remain intact. This is a crucial point for both buyers and sellers to consider. Ultimately, a higher appraisal provides immediate benefits and positions buyers favorably in their homeownership journey. Learn more about how to navigate your home purchase effectively and take full advantage of appraisal insights.