How Appraisals Affect Mortgage Loans
So you’re ready to get a home loan or refinance and want to know how large of a mortgage you can get. That depends on several factors, including the home appraisal. The following guide shows how an appraisal affects the amount of your mortgage loan.
What Is an Appraisal?
An appraisal gives an estimate of what a home is worth. When you apply for a home loan the mortgage lender usually orders up an appraisal and chooses the company to do it. The cost of the appraisal is included in your closing costs, and you are entitled to a copy of the appraisal.
If you already have a mortgage and are thinking of refinancing, you can get your own appraisal to get an idea of what your home is worth. But your mortgage lender is under no obligation to use that report.
Declining Home Values
The appraiser does a comparitive market analysis of recent home sales in your area. He or she also looks at the condition of your property and how much it would cost to rebuild it.
Because so many people have seen their home values plummet during this recession, it can be tough for them to get a large enough appraisal to qualify for a mortgage refinance or new home loan. In many cases homeowners are “upside down” on their loans, or owe more on a mortgage than their house is currently worth. If that happens, you may be denied a mortgage loan.
If the house appraises for less than you expected, you may be asked to make a larger down payment. If you’re buying a home the mortgage lender may even ask you to go back to the seller to renegotiate the sale price.
Reasons Appraisal May Be Low
There are various reasons an appraisal may come in lower than your expected, including:
- Your neighborhood may have a lot of foreclosures, which could affect your home value
- The underwriter could have evaluated the home incorrectly
- The seller may have overpriced the house
- The appraiser may not have much experience
You can always appeal an appraisal, but there is no guarantee of it getting changed. If your mortgage lender won’t budge, you may be unable to refinance or obtain the mortgage loan you need to buy a home.
Tags: home loan, mortgage, mortgage loan, mortgage refinancing, refinance
