When embarking on the journey of purchasing a home, there are several essential steps that buyers must go through before the sale becomes official. Initially, the buyer presents an offer, which is subsequently accepted by the seller. Following this, the buyer proceeds to schedule an inspection and home appraisal, bringing us closer to the final stage of closing.
While it may be tempting to underestimate the significance of these steps, it is crucial to recognize the pivotal role that the home appraisal plays, especially in the context of securing a mortgage. Financial institutions are keen to ensure that the funds they lend are invested in properties that hold substantial value. Therefore, the appraisal process becomes a vital determinant in obtaining financing. Here, we outline what buyers need to know about the appraisal and its potential impact on their mortgages.
Understanding the Home Appraisal Process
The home appraisal provides an opportunity for a qualified valuation expert to assess the market value of a home under consideration by a buyer. These professionals, known as home appraisers, possess specialized training and state licenses that enable them to evaluate properties and assign accurate values to them.
During the appraisal, the expert employs various approaches to determine the final appraised value. Typically, this evaluation occurs after the buyer’s offer has been accepted but before the lender disburses the loan amount.
The Appraisal’s Significance in Mortgage Approval
The appraisal is a crucial factor that mortgage lenders consider when deciding whether to approve a loan request. Even if a borrower has obtained preapproval, a low appraisal has the potential to jeopardize the mortgage’s success.
Why is this the case? Lenders are only willing to extend loans that align with the actual value of the property. If the appraisal value falls below the borrower’s requested amount, the lender can reject the loan application.
In cases where the lender does not outright deny the loan, they may still refuse to lend an amount exceeding the home’s appraised value. Consequently, in order to proceed with the purchase at the agreed-upon price, the buyer may need to bridge the gap with additional cash at the closing.
Options for Buyers if the Appraisal Is Low
In the event that the appraisal value comes in lower than expected, buyers should remain calm and explore potential solutions. One option is to request a new appraisal that considers the home’s improved condition. If the seller addresses any maintenance or repair issues, a subsequent appraisal may yield a higher value.
Additionally, it is essential to consider the overall appearance of the home. While this should not directly impact the appraisal, a neglected or cluttered appearance could inadvertently influence the appraiser’s judgment. In such cases, seeking a second opinion may result in a slightly different appraised value. Nevertheless, when confronted with a low appraisal, it is advisable to evaluate the purchase price and its alignment with current market conditions and the overall condition of the property.
The appraisal process represents a critical step in obtaining mortgage approval. If buyers have conducted their research diligently, the home should successfully pass this assessment, bringing them closer to the completion of the home sale process. Remember, feel free to contact me with any questions you may have!
