Mortgage Basics 101: What Is A Home Appraisal?
According to the Appraisal Institute an appraisal is a professional appraisers opinion of value. In today’s mortgage and lending environment a home owner or buyer cannot get through the mortgage process without getting one of these valuable reports unless the homeowner utilizes one of the few specialized refinance loan options. These reports are prepared by appraisers for the lender. The lender needs to see this report to ensure the money that they are lending out is backed by the proper collateral. The appraised value of your home serves as the basis behind the mortgage company giving you the money in the first place.
Appraisals can be very important tools a home buyer can utilize when determining what a houses value is. A homebuyer can be in the middle of a purchase and get their appraisal and become relieved once they see it comes in higher then the sale price which allows them to have instant and unexpected equity. On the other hand the potential home buyer may find that the appraised value comes in much lower then the purchase price and therefore back out of the deal if they feel the house is not worth their investment.
Related: Check your home’s value: Michigan Home Value Estimator
An appraisal typically contains a homes site size and value. A homes square footage, bedroom count, bathroom count, number of levels to home, type of view, design type of home, quality if construction designation, actual age of home, detail if there is a basement and square footage of basement, heating and cooling elements of the home, energy efficient items, porch/deck/patio, and special details on the home for instance if there is a fireplace or pool.
There are some key details which may help boost the value of your home. First, the old saying of location, location, location really helps. If the house is located in an affluent part of town, in a good school district, or on a body of water that typically helps boost the value. On the other hand if the property is located underneath an undesirable area, has a bad view and is outdated then that can help decrease your homes value.
What Happens When A Home Appraises For Less Than Your Loan Amount?
When a homeowner is refinancing their mortgage many loans require that the home be appraised to meet the loan-to-value requirements of the bank or mortgage company. With the downturn in the economy a few years back, your home’s value is never a guarantee. If the home appraises for less than what you owe then you are considered underwater on your mortgage. This means that you owe more than your house is worth for your current mortgage.
If you are underwater on your home then you should ask your loan officer about programs that you may qualify for allow a high LTV or do not have value requirements altogether such as the FHA Streamline Refinance or a HARP Mortgage.
The FHA Streamline Refinance is a refinance option for homeowners that currently have FHA financing. This loan option does not require an appraisal for approval therefore a low value should not be an option.
For conventional mortgages, the HARP Refinance Mortgage is an option to investigate and see if you qualify. This loan option has no limit on the LTV and most times does not require an appraisal at all.
Is my home worth more than the purchase price?
Typically, homes appraise for whatever the listed sales price is in today’s market. The value has to be substantiated by comparable sales in your area. Potential homebuyers and sellers are much more educated then they used to be because there is so many sources of data they can rely on pricing a home.
Please call to see how much home you can afford by contacting a loan officer at Riverbank Finance today at 800-555-2098 or request information below: