Many factors come into play when a lender makes the commitment to finance a home loan. Lenders look at a borrower’s financial picture, including information such as income, standing debt, and savings. They also assess a borrower’s credit; good credit is vital to securing a home loan. Other factors, like a steady employment history, go toward a lender’s decision about whether a prospective borrower is a good risk for a loan.
But even if all of the financial stars align, a loan may fall through for the simplest of reasons: the home appraisal.
For starters, what is a home appraisal? In simplest terms, an appraisal is an assessment of a property’s value. When a home buyer applies for a mortgage loan, one aspect of the loan request that a lender takes into consideration is the appraiser’s assessed value as compared to the purchase price. If a home doesn’t appraise for at least the purchase price, financing the loan will may not be a good risk for the lender. In order to be certain that the property value is in concert with the amount of financing a borrower is seeking, a lender will request an appraisal to confirm the home’s value.
If you’re selling a home, you’ll want to make sure that the home appraisal reflects a fair assessment of your asking price in order to best attract a buyer who is able to secure financing. And if you’re a borrower hoping to secure a home loan, you’ll want to make sure that a low appraisal doesn’t dampen your ability to do so. So, what are the critical points that you will want an appraisal to accurately reflect?
Some aspects of a home appraisal are fairly straightforward. When looking over the appraisal report, make sure that there are no inaccuracies in terms of square footage, number and type of rooms, date of original construction, and other basic features of the property. Verify that any updates or renovations are included in the assessment as well. Inaccuracies in the basic features of the property can affect its appraised value.
You’ll also want to make sure that the appraisal includes appropriate comparable sales (”comps”) from the surrounding neighborhood or area. You’ll want to make sure the comps he or she used in the appraisal process are appropriate so compare with the home you are buying. If you’re unsure, your real estate agent can help you determine whether the comps are fair.
The condition of a property can also affect a lender’s willingness to offer financing on it. If you feel that an appraiser has unfairly judged the condition of your prospective home, you should discuss the specifics with both your mortgage professional and your real estate agent.
Whether you’re borrowing money to finance a new home or making certain that the price you’re asking on your home reflects its true value, an accurate appraisal is crucial to a home sale.