Why might you need an appraisal? How do appraisals work?
In many cases, lenders need a professional, independent appraisal of the property you want to buy or refinance to ensure that it is worth at least as much as they are being asked to lend on it. If you are making a smaller down payment and have a lower credit score, the lender is going to be even more interested in making sure the property that will be collateral for the loan is worth lending the amount requested.
A professional, independent appraiser will usually visit your home and inspect its interior and exterior. The appraiser doesn’t want to buy your home, and isn’t a visiting head of state. So whatever you do, do not postpone the appraisal until you get a chance to “clean up a little.” Cleaning does not make your appraised value higher! And delaying adds time to an already lengthy process.
The appraiser will form an opinion on the probable market value of the property considering sales of similar homes in the area among other factors. He or she will prepare an appraisal report explaining the conclusion. The appraisal belongs to the lender considering lending money with the home as collateral. Often, you can receive a copy of the appraisal either as a courtesy or in keeping with state law. Let us know you’re interested and we’ll help.
The lender wants to know first of all whether the property is worth at least as much as the loan amount. In the unlikely event the lender would have to foreclose, it wants to know it should be able to recoup at least the loan amount. But if your loan program depends on your borrowing, for example, 95 percent of the property’s value and no more, the appraisal can impact your eligibility for the loan that’s right for you.
On May 1st, 2009, a new Federal Regulation called the “Housing Valuation Code of Conduct” came into effect. It has made many substantial changes to the way appraisals are ordered, who orders them, who pays for them, and the results. It is very controversial, and has had the effects on the consumer of increasing costs for an appraisal, now as much as $550.00, decreasing the professionalism of the appraisers, and causing serious valuation problems that have caused many consumers not to get loans at all. Appraisals now have to be paid by credit card at the time of ordering, and your card is charged whether you get the appraised value you need or not. Mortgage brokers can no longer order the appraisal, and cannot ask an appraiser for an “estimate of value”; consumers are the loser. Attempts are being made to reverse this bad rule, but until successful, we’ll just have to live with it.