Here's Why Mortgages May Be Less Likely to Fall Through in 2022

More borrowers might avoid one specific pitfall this year.

The process of getting a mortgage can be lengthy. That's because different things have to happen in order for you to close on a home loan.

For one thing, your financial information needs to be reviewed thoroughly in a process known as underwriting. The home you're buying will also, generally speaking, need to undergo an inspection to check for hidden problems.Additionally, the home you're looking to buy will need an appraisal.

The purpose of a home appraisal is to make sure the property you're buying is worth enough money to cover your mortgage amount. Say you're looking to borrow $200,000 to buy a home, but that property only appraises for $180,000. In that scenario, your mortgage might fall through. That's because if you were to default on your mortgage, your lender wouldn't be able to sell your home for enough money to recoup the amount it lent you.

It's not uncommon for mortgages to fall through because homes don't appraise at a high enough value. But this year in particular, that's less likely to be an issue.

Higher home values could lead to fewer mortgage issues

If you've been in the market for a new home, you're probably well aware that prices are up across the board. While that may not be the best thing for your wallet, it's a good thing when it comes to home appraisals.

In October, home prices were up 17.4% from one year prior, according to the Federal Housing Finance Agency. And that means that, generally speaking, homes may have an easier time meeting appraisal requirements this year.

Of course, that logic won't always apply. If a given home's price is driven way up during a bidding war, then there's the risk that it won't appraise at a high enough value. Say a home is being sold for $525,000 after an intense bidding war when it was initially listed at $450,000. If all recently sold homes in the area were priced around $450,000, that home may not appraise for $525,000.

But extreme situations aside, home buyers this year may not run into as many appraisal issues when finalizing their mortgages. And that could, in turn, make the process of borrowing for a home less stressful.

What if you encounter an appraisal issue?

If the home you're looking to buy doesn't appraise at a high enough value to finalize your mortgage, you still have options. You can negotiate with your seller to come down on the price, or you can put more money toward your down payment so you're taking out a smaller loan.

Along these lines, be careful when engaging in a bidding war. You may fall in love with a home and decide to do whatever it takes to outbid your competition. But if you offer a sum that's way over a home's asking price, you may run into problems with your appraisal. You could also end up taking on too much house, which is why it's best to proceed with caution when duking it out with other buyers for the same property.