November 15, 2020

Home Appraisal Questions Answered

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What is an Appraisal? 

A home appraisal is an unbiased estimate of the true (or fair market) value of a home. It is an objective way to access the home’s value and, at the same time, ensure that the amount of money requested by the borrower to pay for the home is appropriate. 

Appraisals protect the buyer from paying too much and protect the mortgage company from unsecured loans. 

Who Needs a Home Appraisal? 

Whether you’re buying, refinancing your existing mortgage, or selling your house to anyone other than a cash buyer, a home appraisal is a key component of the transaction. Even in a gift of equity situation, where the home is sold to a family member, a house appraisal is needed. 

Basically, anyone with a home (or planning to buy one) will want to understand how appraisals work. Because somewhere along the homeownership journey, one will be required. 

What Sellers Need to Know

As a seller, a low appraisal means you may have to lower your home’s price to get it sold. Unfortunately, if your surrounding area has experienced recent distressed sales, you may have to showcase improvements. Especially in neighborhoods with many foreclosures and short sales. You see, the sale prices of nearby homes will be one of the most significant factors in your house appraisal. But if your home possesses considerable upgrades, your appraisal will likely climb higher. 

Do You Need a House Appraisal for a Refinance? 

If you’re refinancing a conventional mortgage, an appraisal will be used to determine your new loan’s loan-to-value ratio (known as LTV). This is important if you are attempting to remove mortgage insurance from your loan because you need an LTV of 80% or lower. It also affects how much equity you can take out of your home in a cash-out refinance. 

Just as when buying a home, the house needs to be appraised at or above the amount you want to borrow. However, if your existing mortgage is an FHA mortgage, you can refinance without an appraisal through the FHA Streamline program. This is a great option for underwater homes.

Appraisers Can be Wrong

A seller may feel that a low appraisal is inaccurate and be reluctant to drop the price. So, if a bad appraisal is standing between you and your purchase, look into getting a second opinion. You will, however, need to pay out of pocket for a second appraisal. You are allowed to present a factual case to the original appraiser for a higher value. They may agree and revise the evaluation. Please note, there are a series of federal regulations pertaining to revision and second appraisal requests. It is highly advisable you speak with your mortgage banker or real estate attorney.  

The Bottom Line

In all fifty states, it is required that appraisers be licensed or certified and familiar with the local area. Per federal regulations, the appraiser must be impartial and have no direct or indirect interest in the transaction.

A property’s appraised value is influenced by recent sales of similar properties and current market trends. There is also a visual observance portion, completely inspecting the interior and exterior of the house. The appraiser then provides an analysis and conclusions, submits this to the mortgage lender, and the lender provides the borrower with a copy.  

The process may seem a little nerve-wracking for both sellers and homeowners but we assure you that it is really very straightforward. And we will be here every step of the way. 

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