If your inspection has gone well, you will want to get in to see your mortgage officer to fill out a formal mortgage application, and pay for an appraisal.  Depending on which type of mortgage you are applying for there may be different documentation needed by the mortgage officer; when you call the mortgage officer to schedule a time to meet you should ask for a list of documents you should bring with you.  Some common documents are valid identification and tax returns from previous years.  You will want to make sure that you have everything that the mortgage officer has requested so that the application and approval process goes smoothly.

When you are meeting with your mortgage officer you should ask about the appraisal timeframe.  The mortgage officer will handle the actual appraisal order, but it is always good to know how long before you will receive the appraisal report so you can track where you are on the path to closing on your new home.  It has been my experience that from the time you order an appraisal is could take up to two or three weeks for you to receive the report, depending on how active the market is.  The appraiser will create a lengthy report that details how they value the house based on comparable homes in the area.  You are entitled to a copy of this report, which can provide you with a wealth of information.  The most important part of the appraisal report is the appraised value of the property, which is the amount that your mortgage company will base their mortgage amount on.

In an ideal scenario the appraiser will agree with the purchase price of the home, or maybe value it a little higher – this is like instant equity for you as soon as you close.  Similar to the home inspection however, an issue may arise if the appraised value of the house comes back lower than the agreed upon price of your Purchase Agreement.  In this scenario, if the purchase price were to remain the same then you, the buyer, would be responsible for paying any additional costs on your own. 

For  example: If you are taking out a conventional mortgage (20% down) and your purchase price is $105,000, but the appraisal returns at $95,000, then the mortgage company will only pay 80% on the appraised value of $95,000.  You would have to still pay 20% down on the $95,000 amount for the mortgage, and then an additional $10,000 to meet the purchase contract price of $105,000.  This means that you would be paying an additional $8,000 in closing costs.
Paying more doesn’t sound so great, but do not worry.  The seller may be willing to negotiate the selling price, even though they aren’t required to.  A low appraisal, while being a potential deal-breaker, can create a lot of leverage for a buyer because the seller will have an extremely tough time convincing anyone to pay more for their house than it is actually worth.  In other words, it is usually in the seller’s best interest to be somewhat flexible if the appraisal comes in low and they want to sell their house.

The entire home buying process can be a series of negotiations, and nothing is set in stone until you are at the closing table.  Remember, there is no reason for you to panic if the appraisal of your new home comes in low, and it may actually work to your advantage to save a few dollars if your agent can skillfully negotiate with the seller on your behalf.