Whether you’re buying a new home or refinancing your current property, an appraisal is an essential part of your mortgage process.
Lenders typically require a professional, independent appraisal of the home you want to buy or refinance. This ensures the value of the property meets the loan guidelines and satisfies all lender requirements.
In this article, we’ll share everything you need to know about what to expect during your appraisal process. Keep reading to learn more!
WHAT IS A HOME APPRAISAL?
A home appraisal is a defensible and carefully documented opinion of a home’s market value. If you are buying a home, the appraisal is used to confirm that the home’s contract price is accurate, considering the home’s location, condition, and unique features. If you are refinancing a home, the lender uses the appraisal to verify they aren’t issuing more money than the property is actually worth.
WHAT HAPPENS DURING A HOME APPRAISAL?
During the home appraisal, a licensed professional called an appraiser will conduct a review to reassure both you and your mortgage lender of the home’s value.
The appraiser will visit the property and inspect its interior and exterior to note its style, overall condition, measure square footage, and confirm the number of rooms.
While appraisers are not home inspectors, they will look for any significant defects or safety issues. Appraisers also compare the property to its legally designated use. For example, are there two units when there should only be one? Is the home appropriately zoned? The appraiser will take note of any other external factors that could negatively impact value or marketability.
A list of comparable properties, also called comps, will be pulled to ensure the home’s estimated value is right for the market. The comps should be located in the same area and similar to your home in terms of size, style, and function. For example, if your home is a ranch with three bedrooms and two bathrooms, the appraiser will base its value on nearby three-bedroom ranches – not the 8-bedroom mansion across town.
HOW SHOULD I PREPARE MY HOME FOR AN APPRAISAL?
If you are refinancing your home, you may be wondering how to make sure your home is in optimum condition for the appraisal. While it’s not necessary (and not advisable) to start any major renovations, it’s a good idea to do some general tidying up and cleaning, along with any minor repairs that might be necessary, before you meet with the appraiser.
Outside the home, focus on curb appeal. Mow the lawn, trim the bushes, and tidy the front porch or any patios.
Doing these things will help make the property as attractive and appealing as possible ahead of time.
WHAT HAPPENS AFTER THE APPRAISAL?
The appraiser will form an opinion on the property’s probable market value considering sales of similar homes in the area along with many other factors. He or she will prepare an appraisal report listing the home’s appraised value, how that value was determined, and any factors considered while making that determination.
Once complete, the appraisal report is delivered to your lender. If you are working with First Heritage Mortgage for your home purchase or refinance, you will receive a copy of your appraisal report during the loan process or at closing, so there are no surprises.
The lender uses the appraisal to certify whether the property is worth at least as much as the loan amount. In the unlikely event, the lender would have to foreclose, it wants to know it can recoup at least the loan amount if the home is sold.
Should the appraised value come in lower than expected, additional down payment funds may be required in the deal, or the contract may need to be re-worked. Consult with your realtor if this happens, as there should be language in the purchase contract that specifically addresses this. If you are refinancing and the appraisal comes in low, speak with your lender right away to discuss your options. There may be solutions that still allow you to take advantage of refinancing benefits.
If the home’s appraised value is as expected or higher, your mortgage process will continue as planned.
WRAPPING IT ALL UP
If you’re purchasing or refinancing a home, the appraisal is a major milestone in your mortgage process. During the appraisal, a certified professional appraiser will evaluate the property’s interior and exterior to estimate the home’s fair market value. You and your lender will receive an appraisal report outlining the appraised value of the property, along with how that value was determined. With an appraisal report in hand, you and your lender can move on to the next stage in the mortgage process with confidence.
For questions about home appraisals or general questions about home financing, please speak with one of our mortgage experts today!