Pre-qualified ≠ property qualified
When you're pre-qualified by a licensed mortgage broker, you have been vetted, but the property has not. The lender still has to approve the property itself. Below are some of the issues that can affect a lender's willingness to fund a particular home (this list isn't exhaustive):
- Water damage or foundation leaks
- Roof in poor condition
- Knob & tube or aluminum wiring
- Insulbrick siding
- Former use as a grow-op or meth lab
- UFFI (urea formaldehyde foam insulation)
- Asbestos
- Below-average condition
- Low square footage
- Locks on bedrooms (suggesting use as a rooming house)
- Previous use as a short-term rental (Airbnb, etc.)
- Surrounding adverse influences (next to a gas station, halfway house, etc.)
- Murder or suicide in the home (must be disclosed)
- Status certificate with low reserves, deferred maintenance, or pending lawsuits
- Inability to arrange adequate home insurance
- Zoning other than residential
Some of these (grow-op, meth lab, murder, suicide) must legally be disclosed by the seller. Others won't surface until the appraisal or insurer reviews the file.
The appraisal problem
Lenders fund mortgages based on the lower of the appraised value or the purchase price. If the appraisal comes in below the contract price, you have to make up the difference from non-borrowed funds. Here's what that actually looks like.
Three real scenarios
Scenario 1
As planned
If appraisal comes in low
Additional funds required
$80,000
Scenario 2
As planned
If appraisal comes in low
Additional funds required
$80,000
Scenario 3
As planned
If appraisal comes in low
Additional funds required
$36,000
Numbers are illustrative. In a high-ratio insured transaction (less than 20% down), there's sometimes the option to qualify with a higher insurer premium using the same down payment — but not always. Every situation is different.
The bottom line
If you're confident you're not overpaying and there are no adverse property issues, a firm offer can be acceptable, provided you can cover any shortfall if the appraisal comes in low. One lender may decline a property another would accept; without conditions, your options narrow quickly.
Only you can decide your risk tolerance. Danny's job is to make sure you see the full picture before you sign, so the decision feels calm instead of rushed.