When applying for a mortgage it is important to understand who and what determine your eligibility. With every loan program there are a set of guidelines that need to be followed.  A mortgage underwriter is responsible for making sure that all aspects of your loan adhere to those guidelines. 

There are four major qualifying categories examined by the underwriter:

• income
• assets
• credit
• property

Documents like paystubs and tax returns are used to calculate income; bank statements and retirement accounts are used to document assets; a credit report will show an individuals credit worthiness; and title searches along with the home appraisal will uncover the strength of the property. 

In this article we will break down exactly what home appraisal is.

What is a Home Appraisal?

A home appraisal is an in-depth inspection of a property that determines the fair market value of the home. 

There are three standard methods of appraising a property: the cost approach, the income approach, and the comparable sales approach.  The latter of the three is by far the most common means of valuing a property – especially for residential mortgages. 

What goes into a Home Appraisal?

Appraisers first measure the entire home to determine size, bedroom/bathroom count, and other major characteristics that make up the house. The overall condition and construction quality of the home are documented alongside any upgrades and improvements that may have an impact on the final valuation. 

Once the appraiser has compiled the property’s data, they will compare the features of the subject home with similar properties nearby that have been sold within the past six months. 

The appraiser will add or subject value from the subject home based on the differences found in the comparable sales.  Should the subject property not require any major repairs, the appraiser will report the, “as-is” value of the property – this means, the property, in it’s current condition, is worth, “x”.  Should the property require repairs, the appraiser will present the, “subject to” value, along with the required repairs needed to obtain the “as-is” value.

How much is an appraisal?

Generally, residential appraisals start at about $450 and can increase due to the size and uniqueness of the home.

Who pays for the appraisal?

Appraisals are often the only upfront cost paid by the borrower (the individual getting the loan) prior to the funding and execution of the loan and purchase/refinance transaction.

Can you appeal the value on your appraisal?

If comparable sales are missed and information on the report is incorrect an appeal might be appropriate.  Although it is rare for appraisers to adjust the valuation provided on their report, instances of oversight due occur, and values can be revised.

Does every loan require an appraisal?

Believe it or not, some loans are able to qualify with an, “appraisal waiver”.  Appraisal waivers, like their name indicates, allow the appraisal requirement to be waived. Typically, these transactions have lower loan to values, or the home is selling/valued at what Fannie Mae or Freddie Mac’s automated underwriting systems determine to be at or below market value.    

Now what?

Now that you have 411 on appraisals you should have a better understanding on how your property is valued.  If you would like to learn more feel free to contact us directly and a Lendz loan officer will be happy to answer any of your questions.