What if the property does not appraise?
It's a great question, now what do I do? Help!
So you have just won the bidding war last night in a multiple offer situation and you are so excited, the home has all the features you required and end some. Run to the bank and send the deposit cheque to the seller before they change their minds about selling their home to you, the last thing you wanna do is breach the contract after all the endless showings and months of searching with your Realtor, after all this is your dream home and that's why you paid way over asking price.
What's next? Call the the mortgage broker and let him/her know that you have bought the home that you never thought existed. The mortgage rep congratulates you and then asks how much it cost you and if you have a financing condition in the offer. You reluctantly answer with a no to the condition question and eagerly answer that you only paid 100k above asking due to the heated competition. The mortgage broker says "well congratulations again and now I just hope the home appraises in the amount of the purchase price". You ask after a moment of deep thought what happens in the event it does not? " after all my downpayment exceeds the required 20% for a conventional mortgage". The mortgage rep asks if your Realtor had explained the pitfalls when buying a home without a financing condition? Oh no you start to scratch your head and begin to wonder who should take the blame for this one!
This situation arises more so these days with the Toronto Real Estate market being so hot and it's unfortunate that Realtors are not properly explaining the dangers of buying a home without the financing condition. To the defense most agents don't even understand the financing world and how it works but even still it's no excuse.
This is how it basically works, when buying a home in Toronto, the lender is required to appraise the home in order to secure the loan. If the home does not appraise for the value of the purchase price then the buyer must pay the difference on closing. It's that simple. The message here is to understand the home buying process and work with a Realtor and Mortgage broker that explain the process. One suggestion is to google the people that your interviewing in order to know their experience and don't just rely on a friend or family member telling you that their reputable.
Do your due diligence as the process will be become a great experience and not a roller coaster ride that doesn't seem like will ever end.