Home loan: what happens when the house appraisal is lower than the purchase price?

What happens if the appraisal is lower than the house price?

This is an important scenario for home buyers. Imagine you find a property for 250,000 €, but the credit institution values it at 230,000 €. The bank does not only look at the purchase price to determine the maximum loan amount. For the LTV ratio, the property value corresponds to the lower of the purchase price and the appraisal value.

This may mean you need to provide more own capital.

Why is evaluation so important?

The evaluation helps the credit institution determine the value of the property used as collateral. For permanent and own residence, the loan amount should not normally exceed 90% of the relevant value for LTV.

In example:

Purchase price: 250,000 €
Valuation: 230,000 €

If the applicable limit is 90% of the relevant value, the maximum financing would be calculated on 230,000 € and not on 250,000 €.

90% of 230,000 € = 207,000 €

In this scenario, the difference between the purchase price and financing would be greater.

Who pays the difference?

If the approved financing does not cover the full purchase price, the buyer will have to find another way to finance the difference, usually through own capital, if the operation allows it.

In example:

Price: 250.000 €
Financing: 207.000 €
Difference: 43.000 €

In addition to this difference, the buyer should consider taxes, expenses, and other costs associated with the purchase.

Can I negotiate the house price?

It can be one of the possibilities. If the appraisal is significantly below the agreed price, the buyer may try to renegotiate the value with the seller.

Another option is to look for a new assessment when it is acceptable and makes sense in the process.

Can I ask the bank for more money?

Do not assume yes. The financing amount is conditional, among other factors, on the property value, LTV ratio, and client's solvability assessment. Banco de Portugal also sets limits and recommendations related to the client's financial capacity.

A below-price assessment may increase the need for equity. Therefore, before proceeding with the purchase, it is important to understand how much can be financed and reserve financial margin for any potential difference.

Are you thinking of buying a house? Do your free simulation at Poupança no Minuto and see how much you may need to finance.

FAQ

Does the bank finance 90% of the house price?

Not necessarily. For LTV purposes, the lower of the purchase price and the appraisal value is considered, in the case of a mortgage for a permanent home.

If the house costs 250,000 € and is valued at 230,000 €, what is the considered value?

For LTV purposes, the lowest value is: 230,000 €.

Can I buy the house even with a lower evaluation?

It may be possible, provided you can ensure the difference and the remaining conditions of the operation are met.

Can the evaluation block the credit?

You can limit the funded amount and consequently change the conditions required to finalize the purchase.