Exclusive: New Better Mortgage Appraisal Process Promotes Mortgage Equality

Could Better's appraisal guarantee make buying a home easier?

In today's red-hot real estate market, home buyers need all the help they can get to maximize the chances their offer will be accepted.

Unfortunately, some buyers are held back by the need to make their offers contingent on a home appraisal that shows the home they're buying is worth the amount they offer for it. See, home buyers often need to include an appraisal contingency in their offer. Otherwise, they risk not being able to get approved for a mortgage if the home appraisal comes in too low.

Better has a solution for this problem. Better mortgage has long been committed to revolutionizing the way people purchase homes. It's done this through its:

• All-digital application process
• Fee-free promise
• Efforts to harness the power of technology to make loan approval faster

Now, the online lender is rolling out an Appraisal Guarantee for customers who work with a Better real estate agent to purchase their homes. The guarantee ensures an appraisal is no longer an obstacle to securing a home loan. Now buyers won't have to worry about their purchase being derailed by an appraisal that's too low.

Here's how Better's Appraisal Guarantee works

Traditionally, a low appraisal could make it difficult to buy a home. That's because it affects the loan-to-value ratio, or the value of the property relative to the loan amount.

Think of it this way: A lender caps the amount you can borrow at 90% of the home's appraised value. You offer $200,000 on a home, but the appraisal shows the home is only worth $175,000. That means the maximum mortgage you'd be eligible for would be $157,500, and you'd have to come up with the remaining funds.

Better is changing the rules

Better employs more than 14,000 in-house and partner real estate agents. For home buyers who work with one of them, Better guarantees it will fund their mortgage at the contract price the buyer and seller agree upon. Better will provide this mortgage loan funding even if it turns out that the final appraised value of the home is lower than anticipated. And the loan will be funded at the terms that a non-commissioned Better loan consultant quoted to the buyer up front.

This enables borrowers to make an offer to buy a home without an appraisal contingency because they don't have to worry about being unable to get financing if a home appraisal comes in lower than anticipated.

"In this recent hot market we've seen as many as 20% of appraisals fall short of the market clearing price agreed to by buyers and sellers, so we created a product to give more certainty. It's no longer just about 'a digital mortgage,' it's about using our scale and digital advantage to create real, tangible innovation like the Better Appraisal Guarantee," said Emanuel Santa-Donato, VP, Capital Markets & Lead Acquisition at Better.

Making home buying more inclusive

Better hopes their new Appraisal Guarantee will make home buying not just easier, but more accessible and inclusive to all buyers -- especially given that close to 1 in 5 successful offers in recent months have waived the appraisal contingency.

Without Better's Appraisal Guarantee, wealthier Americans are at an advantage. They may not need to worry about securing financing if they are paying cash. Or they can just bring more money to a transaction if the home doesn't appraise high enough. Better's new guarantee ensures every qualified buyer has the flexibility to make an offer without an appraisal contingency -- not just those who can afford to do so.

Appraisal requirements have historically served to perpetuate housing discrimination, as people of color sometimes faced lower appraisals of their properties. By eliminating the concern that a home will appraise too low, Better is trying to address this systemic racism built into the housing market.

"This is another instance in which Better has taken the lead in making homeownership more accessible. Broken appraisal policies and practices have limited diversity and have created friction for young people, minorities, the LGBTQ communities and others to move easily into neighborhoods they can afford," said Jillian White, Head of Collateral at Better. "I myself have taken down family photos and other identifying objects when selling my home knowing my identity could play a role in the appraisal process. This isn't the American dream we all worked so hard for."

With Better's Appraisal Guarantee, appraisers will no longer serve as the gatekeepers to homeownership. Instead, borrowers will work with their agent to agree on a purchase price and can lock in their loan terms and appraised value within as little as 15 minutes.

They'll be able to make the equivalent of a cash offer, which could lead to an offer acceptance rate that's up to 50% higher. This could be a game changer for many borrowers struggling to compete in one of the hottest housing markets in years.

As White said, "Our team at Better has worked for five years to build the first truly digital homeownership platform, and today, that dream has become reality with the launch of the Better Appraisal Guarantee."