3 minute read
Understanding the home’s appraisal
By Kenneth Session
undERstAndIng tHE HOmE’s APPRAIsAL PROCEss And HOw It CAn AffECt yOuR mORtgAgE PAymEnt
Home appraisal is a critical step to both home buyers and sellers whether purchasing a home using a mortgage, refinancing your existing mortgage, or selling your home to anyone other than an all-cash buyer.
Due to its significance, it’s important for both home buyers and sellers to understand the ins and outs of the process.
According to Investopedia, a home appraisal is an unbiased professional opinion of a home’s value. For a buyer, having a home appraisal performed to confirm the sales price for the lender is a key part of getting a mortgage. On the other hand, a good appraisal is crucial to secure the best price possible for a seller’s property.
Moreover, lenders require a home appraisal before they give out a mortgage simply because they are protecting their investment. Lenders have to determine that the actual market value of the property is enough such that in case you default on the mortgage, the lender will sell the property for enough money to cover the loan.
HOW DOES THE HOME APPRAISAL PROCESS WORK?
The home appraisal process normally kicks off after an offer has been made and the property has been inspected. Normally, the buyer pays for the appraisal costs and in most
cases arrange for it to occur as well. This is how it goes despite the fact that its purpose is to protect the lender, and not you the buyer. The cost of appraisal generally depends on the property type and location. High-end homes or homes with multiple units cost more. Appraisal costs typically range between $312-$407 in 2021, with a national average of $340.
Once done, the appraisal report is directly sent to the lender. However, you can request for a copy and you’ll receive it as well. Additionally, expect the appraisal process to take between three to 10 business days.
HOW CAN AN APPRAISAL AFFECT YOUR MORTGAGE LOAN AMOUNT?
Lenders issue mortgage loans based on the estimate of the home’s fair market value determined after the appraisal process. This means that an appraisal directly affects the amount of mortgage loan you can get. In other words, an appraisal protects the lender from giving you too much money, while keeping you from borrowing more than you need for a particular home.
APPRAISAL AMOUNT LESS THAN THE SALES PRICE?
You could be wondering, what happens if a home is appraised lower than the amount it’s being sold at? This may be termed as a rare scenario but it happens and it’s best to be ready.
One thing worth noting is that a low appraisal doesn’t mean the lender will shy from lending you money. Rather, it means the lender will issue you a loan on the basis of loan-to-value (LTV) ratio agreed to in the prospect contract. for the amount your loan will cover in buying the house. In other words, it compares the loan amount you’re getting with the value of the home. This means that you might be required to put down more money to make up the variance. Alternatively, you can approach the seller to see if they can reduce the asking price to the level of the appraised value.
On the other hand, if the property is appraised for higher than the purchase price, you’re certainly in a good situation. A higher appraisal amount means that the seller is asking for less than the home’s market value. In this case, your mortgage amount will not change since the selling price will not increase to meet the appraisal value.
Understanding the home appraisal process and all the possible outcomes that surround it is a significant step to both home buyers and sellers. The process is especially important to buyers as it helps them to smoothly maneuver the market and land a home that falls within the budget and what the lender is willing to give. As a seller, it’s important to have your home appraised to help you accurately place the right selling price on the home to attract prospective buyers.
Work cited.
https://www.thebalance.com/appraisal-process-when-buyinga-home-2395235. https://www.rocketmortgage.com/learn/does-house-have-toappraise-for-selling-price-or-mortgage-amount.
Frazier Group Realty Inc.
3739 Sixth Street Riverside, CA 92501
www.fraziergrouprealty.com rubyfrazier@fraziergrouprealty.com O: (951) 686-5261 F: (714) 908-7298 Lic# 01751773
