Mortgage loan and refinance loan approval is primarily based on your credit score, income and debt-to-income ratio. If you meet the requirements in these areas, getting approved for the loan should be easy, but there's one more factor to consider -- the appraisal. Lenders won't approve a loan if the house isn't worth at least the requested amount or more. A bad house appraisal can negate all of the positives on your application and result in your loan application being denied. If you find yourself in this situation, you can try to dispute the low appraisal.
Review the Report
The first step to take if your appraisal came in too low is to review the appraisal report and information. Although the appraiser is a licensed professional mistakes can happen. The square footage of the home might be calculated incorrectly, or the appraiser might have inadvertently left off a bedroom or bathroom. Various mistakes can be made through human error or simple typos. Carefully review the information for accuracy.
Research the Comps
The sales data from other similar homes in your area -- known as "comps" -- impact the appraised value of your property. Bad appraisal values might result from comps with lower-than-average sales data due to foreclosure or short sales. Your appraiser might not have taken into consideration that the sales data came from a forced sale versus a typical sale.
Request a Second Opinion
Low appraisals aren't always the result of an error or misunderstanding comps; sometimes the appraiser's opinion isn't quite fair. The appraiser might not be extremely familiar with the area your property is located in and the various neighborhood's special caveats. As a borrower, you have the right to request a second appraisal. You'll be charged a second fee, but it might save the loan application from denial. Specify that you want the appraiser to be local to your area.
Provide More Information
You can provide the appraiser with more detailed information, if you feel they might possibly overlook it during the appraisal tour. For example, you can show the appraiser before photos of a remodeling project or provide receipts for the costs of repairs. Point out any special materials used or features that make your property stand out.