Is a home financed based on the purchase or appraised value?
One of the procedures that any buyer must carry out before acquiring a property is the appraisal, which will determine the real value of the property through a legal certificate. This procedure is included in the management costs of the mortgage because the amount of money that the bank will grant to the future owner as financing depends on its result, that is to say, the percentage of the purchase that they will allow us to mortgage. In the result there can be two casuistry: that the appraisal is higher than the purchase value, that it is lower or that it is exactly the same.
What influences the appraisal?
There is an official scale that values the property according to the square meters it has, its distribution, its age, its conservation, its location, its orientation and the quality of its construction materials, among others.
What happens if the appraisal is higher than the purchase value?
One of the scenarios that can occur at the time of the appraisal of the property is that the result of the appraisal determines that the value of the property is higher than the sale value, that is to say, that the property is worth more than the price at which it is sold. This could benefit the future owner since it would mean that he/she is going to buy a house at a cheap price.
Why is the property sold at a lower price?
Among the most common reasons is usually that the owner is in a hurry to sell the property, either because it is from a shared inheritance, because he wants to buy another house or because he needs the money to make any other investment or to pay off debts.
Another benefit for the buyer is that, in terms of financing, banks usually grant 80% of the purchase or appraisal value of the property for the mortgage. Therefore, if the home has a higher appraisal than the purchase price, it is possible that the bank will finance 80% of that appraised value, a scenario in which the buyer will need less money saved for the down payment and expenses.
For example, if the property in question is sold for 300,000 euros, but the purchase price is 350,000 euros, the bank would finance 80% of the 350,000 euros, i.e. 280,000 euros, and we would have to contribute the remaining 20,000 euros as a down payment and another 30,000 euros for the mortgage management costs (10%). In total, we should have 50,000 euros saved. However, if the financing were to be granted directly on the 300,000 euros of the purchase price, 80% of that amount is 240,000 euros, which is what the bank would finance, so we would have to contribute 60,000 euros as a down payment and the same 30,000 euros for the management costs, i.e., we would have to have 90,000 euros saved.
What happens if the appraisal is lower than the purchase price?
If the result of the appraisal of the property is lower than the purchase price, the opposite of what is explained in the previous section will happen. That is to say, the lower the result of the appraisal, the less money the bank can give us to be able to finance the purchase of the house.
Following the same example above, if the house we are going to buy costs 300,000 euros and the appraisal tells us that it is really worth 250,000 euros, the bank in this case will only finance 80% of those 250,000 euros, that is to say, 200,000 euros, so that we would have to contribute the remaining 100,000 euros for the purchase price and the additional 10%, the 30,000 euros of management expenses to carry out the whole operation.
In addition, it should be taken into account that, if in a few years we want to sell the property, it is likely that we will lose money with this operation. For these reasons, it is very important, therefore, to make sure that the property is worth the same or more than the price for which it is purchased, especially if it is seen as an investment or if you have just enough money for financing.
What if the purchase and appraised values are the same?
This would be the ideal scenario, the easiest for future owners, but the most difficult to find. The result of an appraisal will depend to a large extent on the appraisal company, so it is very difficult for two appraisers to offer the same value for a property. However, in case this happens, the owner will save calculations and negotiations with the banks since, if the property is worth 300,000 euros, the financing that will be granted will be 80% of those 300,000 euros and the rest will have to be provided from his savings, without further complication.
Which banks finance on the appraised value?
Although most banks usually finance 80% of the value of the property according to the purchase price, there are some banks that finance according to the lowest price (either the appraisal or the purchase price) and others such as ING that allow direct financing using the appraisal value as a reference, even if it is higher than the purchase price.
Source: https://noticias.habitaclia.com/
