Purchasing a new home can be one of the best adventures in a lifetime. It can also be very stressful, confusing, and maybe even a little overwhelming. Right now, the housing market is much more different than it was just a few years ago. If you are brand new to shopping for a home or have not done so in the last couple of years, there may be some terms being used you were unaware of.
Appraisal Gap
While this is not a new term it is relatively new to many homebuyers as it was rarely used before the pandemic. An appraisal gap is an occurrence of when a buyer has offered to purchase a home for more than what it has been professionally appraised for.
This can also refer to a home being purchased for less than the official appraised fair market value, but this is very rare in a world full of bidding wars in the current market. It is not uncommon for homes to enter into bidding wars and buyers to offer to pay above list price for a home only to find out that the fair market value is below what they offered.
This leaves a buyer with a situation to try and negotiate a lower purchase price or pay for the difference in value and their offer in cash out of their pocket.
More: Buying Tips from Unsuccessful Buyers in 2021
Appraisal Gap Insurance
This is an added promise included in the purchase contract when a buyer offers above the list price that they will pay the difference in the appraisal and list price up to a certain amount. It is much more commonly used in bidding war situations to help a buyer win out in a bidding war and help guarantee their offer to the seller.
This can also sometimes be called an appraisal gap clause.
Waiving Contingencies
In most offer contracts there are standard contingencies included such as the appraisal contingency and the inspection contingency. It is very common for many buyers to waive contingencies where possible to try and make their offer more enticing and be able to close on the home sale more quickly. This is not always an option especially if the buyer is purchasing a home with the help of a mortgage. Most lenders will require at least an appraisal.
Seller Delay of Closing
In the crazy world of inventory shortages, some sellers are asking for an extension on the closing date of the sale to allow them more time in the home while they find the next one. With the hectic market that has been continuing with a lack of home inventory, it is a good idea to include some solid provisions for what will happen when closing needs to be delayed.
It is a good idea to include some concessions for any trouble that a possible delay would cause to the other party in the transaction. Some buyers find it helpful to include a rent back clause where the seller begins renting the home from the new owner to help encourage them not to continue to ask to delay closing out further.
More: Bank Statement Home Loans for Self-Employed
Non-QM Mortgage
More and more homebuyers are finding it useful to forego traditional mortgage loans and obtain a non-QM mortgage. This simply means a non-qualifying or non-conforming loan. These loans allow the borrower a little more acceptance with a different means to verify that they are a solid and responsible candidate for a loan outside of stricter traditional loan qualifiers.
The real estate market is very much different from what it was just a few years ago. If you are just entering it now it will look very different than what some come to expect. It is always a great idea to hire an experienced real estate professional to help you navigate today’s market.
More: How to get a home loan without tax returns
For more information on purchasing a home in Wewahitchka Florida and other Forgotten Coast real estate, please contact us any time.
