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Understanding Home Appraisals

Posted on August 2, 2017

An appraisal is an essential step in any Mortgage  process.

It establishes the value of the home to be used as collateral, and determines how much money the lender is willing to loan for a new mortgage and how much cash a homeowner is able to obtain in a refinance or second mortgage. For this reason, the appraisal will happen early in the mortgage process, after the real estate purchase contract is in place between the buyer and the seller. It will be initiated by the lender, who will contact an appraisal company, which will assign an appraiser.

Beige, suburban house Once initiated, it may take two weeks or longer for an appraisal to be complete, based on how busy the housing market is at the time. The appraiser will visit the house and assess it, inside and out, to determine its condition and confirm basic information such as number of bedrooms and bathrooms. The appraiser will also pull comparable listings, or “comps,” of other, similar homes, generally within a three-mile radius. By comparing the house being appraised with the sale price of other, comparable properties, and adjusting up for things like having a mountain view, or down for things like an obvious need for a roof repair, the appraiser establishes the home’s value.

In some cases, the appraised value may be different than the contracted price. This is good news for the buyer if the appraisal is higher as they will start out with more equity in the home than expected. However, sometimes the appraised value may be lower than the contracted price, which will limit the amount of the mortgage the lender is able to make. For example, if a home is appraised at $150,000, and the contracted price is $160,000, the lender will only provide a mortgage based on the $150,000 value (less any required down payment). The extra $10,000 will need to be made up somehow, either by the buyer putting the additional amount toward the purchase, or negotiating a new sale price with the seller. The buyer may also decide to pull out of the contract. Your home loan consultant will share the appraisal results and advise you about their implications, so you and your realtor can determine how best to proceed.

The appraisal process can also be more challenging in some cases as the value can be impacted by specific property attributes, for example, “unique” properties where it may be difficult to find comparable sales, properties that may have mixed-use zoning, or when the property has more than 10 acres. When these factors are present, the property may not meet the lender’s underwriting guidelines and result in a denial.  At On Tap Credit Union, we have the flexibility to look beyond “standard underwriting criteria” and help potential homebuyers depending on their individual situation.

Although the lender initiates the appraisal process, the buyer is responsible for paying for it. Costs can range from $435 - $685, depending on the type of property and loan type, with investment and mountain properties costing more. As a special promotion to assist our members, On Tap Credit Union is currently offering to cover your appraisal costs*, so contact one of our home loan consultants today to get started on your mortgage or refinancing application!

*Maximum appraisal fee waived is $450, on approved applications only. Subject to credit approval. Minimum loan amount of $15,000 and maximum loan amount of $250,000 for home equity loans and home equity lines of credit. Minimum loan amount of $100,000 and maximum loan amount of $493,350 for first mortgages.