Do you need an appraisal for your mortgage?

Jessica · Last edited by Jessica on Fri Mar 24, 2006 3:42 am

An appraisal involves the evaluation of the market value of real property including mobile home. It gives an estimate of the price that can be obtained by selling the property in a competitive real estate market. Appraisal is required when you intend to buy a property with the help of a mortgage loan taken against the same property. An appraisal is also necessary when you refinance your existing mortgage with a new home loan.

Your lender may need an appraisal in order to ensure that the property will sell at least at the amount which he will be offering as loan. The lender or the bank offering the loan needs an assurance that in case of default they can make up for the amount of cash they have invested in making the loan. This is why an appraisal is carried out on the property that is kept as security for a home loan.

A home appraisal is different from that of home inspection. The appraisers take notice of the various problems in the property but they never test appliances or inspect different areas in the property.

A residential appraisal report generally consists of the following information:

Details of the property under appraisal.
A comparison of the property with 3 similar properties in the neighborhood.
Evaluation of the real estate market in the area where the property is located.
The type of area where the property is situated.
Estimate of the average sales time required for the property.
The appraiser's comments and remarks on the issues that may affect the property value.
Instructions regarding the defects in the property including the foundation.

Appraisers who are licensed by their respective states can evaluate your property value. Your lender may appoint an independent appraiser or else he may use his staff for conducting an appraisal. In both cases, the lender charges an appraisal fee which is included within the closing costs paid for your mortgage.

You may also select an appraiser, but in such a case, the results of appraisal will be reviewed before they are accepted. It is always better if the appraisal is done by a third party who has no financial dealing with either of the parties involved in home-buying or refinancing.

Your final approval in the loan process depends on a satisfactory appraisal of the property against which you have taken the mortgage loan. If the appraised home value does not support the loan amount, then the loan is never originated. The appraisal determines the loan-to-value ratio in mortgage loan, and if the loan amount exceeds the appraised property-value, then it is the borrower who has to pay higher costs and interest for getting a higher loan amount.

Related References:

Appraisal Institute

Guest 0.10 Dollars($)

I am into buying a home. The lender said I should have an appraisal done on my home. I am having talks with some appraisers and each of them speaks about different ways of doing the appraisal. I am really confused. Can u help with some details, as my lender is out of town, so I cannot ask him?

Caron · Posted: Fri Dec 23, 2005 2:19 am Post subject: RE:

Hi Blake,

What the appraisers told you is not incorrect. Actually, there are many ways of doing an appraisal and the process varies from one lender to another.

Most appraisers use the following methods for a property appraisal.

Cost Approach to Value includes the cost of replacing or reproducing the improvements as of the date of appraisal excluding the physical deterioration, functional obsolescence and economic obsolescence. The remaining portion is added to the Land Value.
Comparison Approach to Value makes use of other properties of similar size, quality, and location that have been recently sold and helps in comparing these properties along with the property to be appraised.
Income Approach to Value is very important in determining the value of properties which generate income. This approach helps to provide an estimate of what a wise investor should pay based upon the net income of the property producers or owners.

Thanks,
Caron

lisascherzer · Joined: 04 Jan 2008 Posts: 599 69.56 Dollars($)

Hi Blake,

Usually the lender orders the appraisal for you. I would just take a look at a couple different lenders that might handle this for you better. Especially if you are being quoted a rate that is over 5.625% fixed. There are many lenders that will handle all of this for you and have rates that are in the mid 5's.

jbarto65 · Joined: 04 Nov 2007 Posts: 591 4.82 Dollars($)

I wanted to comment on the original posters post, another great work, thank you for sharing your vast knowledge with us here.

Blake,

Our lender set up the appraisal for us, even when we used the house as collateral on smaller loans, the appraisal was done by someone that the lender got, they are way more familiar with this process than the common everyday citizen.

john · Joined: 23 Jun 2008 Posts: 35 16.56 Dollars($)

An appraisal is needed on most home loans unless the lender is giong off of online data which is not usually the case unless you have 55% or more equity left in your home after the new closing costs etc etc. most times the online appraisals or market anaylis comes in low as well.. just so you know.

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